Meadow Lane Bakery: registration date and pre-registration VAT
Meadow Lane Bakery is a sole trader business run by Priya, with a 31 March year end. She has never been VAT registered. Her VAT taxable turnover for the rolling 12 months to 31 August 2024 was £96,400; before that it had never exceeded £80,000. She has kept every purchase invoice.
Before registering she incurred:
- Oven, £7,200 including VAT, bought 12 May 2023 and still in daily use.
- Accountant's invoice for £1,800 including VAT, dated 15 February 2024, for preparing the 2023/24 accounts.
- Solicitor's invoice for £2,400 including VAT, dated 20 August 2024, for a lease renewal.
- Flour, butter and packaging, £3,600 including VAT, bought in July 2024 and all used by 31 August 2024.
- Delivery bicycle, £2,160 including VAT, bought 2 October 2021 and still used daily.
1. State the date by which Priya must notify HMRC and the date her VAT registration takes effect. Explain the rule you applied.
Read the worked answer
This is the 'backward look' test. Because VAT taxable turnover for the previous 12 months has gone above £90,000, registration is compulsory.
- The threshold was exceeded in the month ended 31 August 2024.
- HMRC must be notified within 30 days of the end of that month, so by 30 September 2024.
- Registration takes effect from the first day of the second month after the month in which the threshold was exceeded: 1 October 2024.
Priya must therefore charge VAT on all standard-rated and reduced-rated sales from 1 October 2024, even for orders placed before that date but invoiced on or after it. She also becomes liable for the £90,000 forward-look test going forward.
A common error is to register from 1 September (the month after) or 1 November (three months after). The two-month lag is what buys the extra month to notify.
2. For each of the five costs, decide whether the input VAT can be recovered under the pre-registration rules and give the amounts. What is the total claimable?
Read the worked answer
Pre-registration rules:
- Goods: VAT recoverable if bought in the 4 years before registration and still held at the date of registration for business use.
- Services: VAT recoverable if supplied in the 6 months before registration.
- In both cases the VAT must not relate to exempt or non-business activity and a valid VAT invoice is needed.
| Cost | Recoverable? | VAT claimed |
|---|---|---|
| Oven £7,200 inc VAT (12 May 2023) | Yes - goods inside the 4 years and still in use | £1,200 |
| Accountant £1,800 inc VAT (15 Feb 2024) | No - a service supplied more than 6 months before 1 October 2024 | £0 |
| Solicitor £2,400 inc VAT (20 Aug 2024) | Yes - service within the 6-month window | £400 |
| Ingredients £3,600 inc VAT (July 2024) | No - goods no longer held; they had been consumed before registration | £0 |
| Bicycle £2,160 inc VAT (2 Oct 2021) | Yes - goods bought within 4 years and still held | £360 |
Total recoverable: £1,960 (£1,200 + £400 + £360).
The ingredients are the trap: they are goods, not services, so the 6-month test is irrelevant; the 4-year test is irrelevant too because the stock must still exist at registration.
3. Ignore the £96,400 figure. Suppose instead the rolling 12-month turnover was £87,000, but on 10 September 2024 Priya signed a contract for £14,000 of wedding cakes to be delivered in December. Does she have to register, and from when?
Read the worked answer
Yes. This is the forward look test.
If a business expects its VAT taxable turnover in the next 30 days alone to exceed £90,000, it must register even though the backward look is satisfied. £87,000 already invoiced plus the £14,000 contract = £101,000 of taxable turnover falling due in the 30 days from 10 September 2024.
- Effective date of registration: 10 September 2024 - the start of the 30-day period in which the threshold is expected to be exceeded, not the delivery date and not the date HMRC processes the application.
- HMRC must be notified within 30 days of the end of the month in which the liability arose.
So VAT is due on the December delivery, and on any other standard-rated sales made from 10 September onwards. Note the two tests use different dates: the backward look looks at the end of the month and adds two months; the forward look bites immediately.