VAT registration waiver - Landlords Financial | Bookkeeping Services Manchester

HMRC requires businesses to register for VAT if their taxable turnover exceeds £90,000 in the last 12 months or is expected to exceed this threshold within the next 30 days.

Registration must be within 30 days of the end of the month in which the limit is exceeded (or, if the limit will be exceeded in the next 30 days, by the end of that 30-day period). Failing to register when required could result in penalties, back payments of VAT owed and interest charges. HMRC reviews tax returns to determine whether a taxpayer should have registered for VAT, therefore application should be made within the time limit.

However, there are circumstances where HMRC may exercise discretion and will waive registration even if the application is late.

One valid reason for applying for an exception is if a business temporarily exceeds the turnover limit. For example, if a business typically has a steady turnover below the VAT registration threshold except for a one-off sale, it can apply for an exception by demonstrating that it expects its turnover to fall below the deregistration threshold of £88,000 in the following 12 months.

VAT exemption (rather than exception) can be applied for where a business primarily makes zero-rated supplies as the business will always be in a refund position. Application can be made even if the business also makes some taxable supplies.

Application process

HMRC guidance states that initial contact with HMRC must be made by phone to request both form VAT1 (application for registration) and VAT5EXC (VAT exception form). Whilst form VAT 1 can be obtained online, form VAT5EXC cannot, hence the need for the phone call. On receipt of both completed forms, HMRC will write within 40 working days confirming whether or not the exception application has been accepted.

Form VAT5EXC requires the business to confirm its operations, expected turnover and the nature of its taxable supplies. Any additional supporting information such as

an explanation of the reasons for the temporary increase in turnover and turnover projections for the twelve months following the exceeded registration limit should also be submitted.

Late registration

If a business realised it has exceeded the threshold after the 30-day notification period, it can still request HMRC to exercise discretion in waiving registration. However, a business that exceeded the limit due to a temporary 'blip' will not be granted exception if it expects its supplies to exceed the registration threshold in the following 30 days.

Should the application for retrospective exception be made, HMRC is required to consider information which:

· would have been available at that time; and

· would have led to the granting of exception from registration at the earlier date.

There is a particularly important question on form VAT5EXC that requires careful consideration as HMRC has been known to rely heavily on the answer in court:

“Please explain why you thought, at the time your turnover went over the registration limit, your turnover would be back below the deregistration limit within the next 12 months”.

In the recent case of Dawn Kaffel v HMRC [2025], the First Tier Tribunal dismissed an appeal against HMRC's decision to deny an exception, quoting the answer Mrs Kaffel stated to this question. The tribunal noted that the taxpayer, a relationship counsellor, was still experiencing exceptional demand due to Covid at the time of (late) registration and had taken no steps to reduce her future turnover. Mrs Kaffel's response to the question above referred to future plans to reduce her workload rather than giving a reason for a temporary increase. The tribunal stated that this indicated an expectation that the turnover would exceed the limit in the following twelve months.

VAT registration waiver - Landlords Financial | Bookkeeping Services Manchester

Find Out More