Liable Not Liable: The HMRC concession that not a lot of people know about

As Michael Caine famously said, “Not a lot of people know that.”  As it turns out, he didn’t say that at all – comedian Peter Sellers actually coined the phrase.

With regard to this interesting tax concession, what a lot of people don’t know is that if you are penalised for registering late for VAT, you could benefit from an undocumented VAT concession which may reduce your penalty.

For example, you may be aiming to stay below the VAT threshold, but your business suddenly grows so successfully that you cross it. If you don’t register for VAT right away, HMRC’s team will very quickly slap with you with a penalty.

What could happen?

In a recent case study published by AccountingWeb, this happened to the owner of a guest house. He exceeded the threshold on 31st May (not this year), so should have registered for VAT on 1st July. He didn’t register in time so received a nasty penalty: an assessment for almost £10,000 plus a late registration penalty of roughly £2,000 (20% of the tax due).

However, it could have been much worse. When working out the fine, HMRC applied the “liable not liable concession” which reduced  the guest house’s actual period of VAT registration to begin in the July rather than the 31st May.

When does the liable not liable concession kick in?

This concession is relevant when a business has failed to register on time, but HMRC can see that the business has a fluctuating turnover, meaning that the total ‘taxable sales’ could fall below the threshold on a future date. This happened to the guest house at the end of November in the following year – possibly because fewer people were going on holiday at that time, so the period of VAT registration was cut short to end on this date rather than continuing through to the following year.

This concession is set out in HMRC’s Registration manual but, strangely, the text is not available for anyone to read. Instead it says: “This content has been withheld because of exemption in the Freedom of Information Act 2000.” Therefore not a lot of people know about it! So if you’re running a business that is around the threshold level, it’s worth bearing this concession in mind.

Monitor your turnover

If your business is not registered for VAT, you must carefully record your turnover on a rolling 12 months to avoid crossing the limit by mistake and failing to notify HMRC.

It’s often hard to keep track of this when you’re focused on running your business, which is why we’re happy to take it on board for you: our specialist team at Accounting2You can look after your books while you concentrate on looking after your business.