Due to recent changes in the VAT registration process by HMRC, the issuing of VAT registration numbers has been subject to significant delays. In the past, businesses could obtain a VAT number within 24 hours. However, HMRC now advises that this process can take up to three months.
This delay is primarily caused by HMRC's transition to a new VAT Registration Service. As a result, businesses awaiting their VAT registration number face challenges, such as the inability to issue VAT invoices to customers.
Effective Date of Registration:
Your business must start accounting for VAT from the 'effective date of registration.' This date is either the end of the month following the relevant month in which your business exceeded the £85,000 turnover threshold during the previous 12 months, the date of voluntary registration, or an earlier date agreed upon with HMRC. From this point forward, all your invoices should include VAT.
While waiting for your VAT number during this interim period, HMRC recommends that businesses that know their effective date of registration adjust their prices to reflect the gross amount received. VAT should not be shown separately on any invoices.
Basic Tax Point:
For supplies of goods, the basic tax point is the date when the goods are removed, shipped, or taken by the customer. If the goods are not removed, the basic tax point is the date they are made available. For services, the basic tax point is the date the services are performed. If a VAT invoice is issued or payment is received before the basic tax point, an earlier actual tax point is created, whichever occurs first.
If your business supplies goods or services more than 14 days before a VAT invoice is issued, the basic tax point becomes the date of supply. However, an actual tax point always overrides the basic tax point. To create an actual tax point, a 'proper' VAT invoice is required, showing specific information such as supplier and customer details, a description of goods or services, VAT numbers, the tax point/date, and applicable VAT rates.
It's important to note that a receipt is not the same as an invoice. An invoice must explicitly include the word 'invoice' and provide details that a receipt typically lacks. A modified invoice, displaying the VAT inclusive value of sales, can be used by retailers for transactions exceeding £250 (excluding VAT).
When Your VAT Number Arrives:
Once you have received your VAT number, you will need to reissue all invoices raised between the date of registration and the arrival of the VAT number. Only from the date of receipt can customers claim the VAT charged.
Practical Steps:
We recommend issuing invoices during the interim period while ensuring you include the words 'VAT registration applied for.' This will inform your customers that they cannot immediately claim the VAT payment but will be able to do so at a later date. To provide further clarity, many businesses also add the phrase 'This is not a VAT invoice.'
For further clarification please see the following example from the HMRC website: https://www.gov.uk/register-for-vat/how-register-for-vat
Accounting for VAT while you wait for your VAT number
You cannot include VAT on your invoices until you get your VAT number but you can increase your prices to account for the VAT you’ll need to pay to HMRC.
Example (from HMRC)
On 1 May, you arrange a £100,000 contract to provide services to a new customer. You register for VAT because you know you’ll go over the threshold in the next 30 days.
Your effective date of registration is 1 May. This means you’ll need to pay VAT to HMRC on any invoices you raise from that date.
To account for the VAT you’ll need to pay, tell your customer that you’ll be adding 20% to the original contract amount of £100,000 and then raise an invoice for £120,000.
After you get your VAT number, reissue the invoice showing the full amount including the £20,000 VAT. Your customer does not need to make any extra payment but can now reclaim the additional £20,000 from HMRC on their next VAT return.
If you have any questions or require assistance with your VAT registration or related matters, please do not hesitate to reach out to our team.