What to do while waiting for your VAT registration number to be issued

This article explains what to do in FreeAgent if you have applied to be registered for VAT and are waiting for HMRC to issue your VAT number.

If you have applied to be registered for VAT, there will be a gap between the date you submitted the application and the date when HMRC issues your VAT number.

When you submitted your application, you will have had to give a date from which your business will be registered. This will be your VAT registration date, and HMRC says that you should start charging VAT to your customers for every sale that you make on or after your VAT registration date.

But it will take time for HMRC to issue your VAT number, and until you have a VAT number, you must not issue VAT invoices to your customers nor show VAT as a separate line on your invoices.

So how can you charge VAT to your customers in the period between your VAT registration date and the arrival of your VAT number?

HMRC recommends that during that interim period, you increase your prices by the amount of VAT you would have included on a proper VAT invoice. So if you would have charged a customer £100 for a service that's standard-rated for VAT, you increase your price by 20% and charge them £120.

FreeAgent will do that for you.

Once you've applied for registration

Select 'Settings' from the drop-down menu in the top-right corner and then select 'VAT Registration'.

Then choose 'Registration Applied For', and put in your expected VAT registration date. Save your changes.

When you create your invoices now, FreeAgent will add the equivalent amount of VAT to the prices you put in.

When your VAT registration number arrives

When your VAT number arrives from HMRC, go back to Settings > VAT Registration and change the setting to Registered, and put in your VAT number.

You'll then need to review any invoices that you issued and sent in the interim period between your registration date and the arrival of your VAT number and resend them to your customers. VAT will now be automatically updated and displayed on these invoices based on the VAT rate that was selected when creating the invoices in the interim period. Your VAT number will also be added onto your invoices. This is important because it gives your customers VAT invoices that they can use to claim back any VAT you have charged them.

Remember to review all active recurring invoice profiles, so that the correct rate of VAT will be applied to future recurring invoices.

Should I not issue VAT-only invoices when my number comes through?

HMRC doesn't recommend this. When we asked them, they could not confirm that your customer would actually be obliged to pay for a VAT-only invoice, and so you could end up out of pocket because you would still have to find that cash to pay HMRC.