Registering late does not move your start date. HMRC registers you from the date you should have been registered, treats the sales you made since then as including VAT, and collects that VAT from you even though you never charged it. On top of the arrears it can charge a failure to notify penalty of up to 30% of the lost VAT for a non deliberate failure, and more if the failure was deliberate.

Does HMRC backdate my registration?

Yes. HMRC has a legal responsibility to register a trader from the correct effective date even if they failed to notify, or notified late (VATREG26100). Schedule 1 to the VAT Act 1994 says HMRC shall register a person who is liable whether or not they notify: from the first day of the second month after crossing the threshold under the rolling test (paragraph 5), or from the start of the 30 day period under the forward look (paragraph 6). Notice 700/1 paragraph 4.6 confirms that, regardless of when you tell HMRC, you will be registered from the date you were liable and must account for VAT from that date even if you did not charge it to your customers.

If you are already registered but from too late a date, HMRC corrects the effective date to the earlier one and issues a return for the missing period (VATREG26550). How the two tests set the date is explained in the rolling 12 month test and the 30 day forward look test.

How does HMRC work out the date I should have registered?

Because liability is tested month by month, HMRC needs turnover for each month before the alleged date. VATREG26200 tells officers that where only annual figures exist, such as from a tax return, they should use a reasonable method to spread turnover across months and record the method in case of an appeal. Before registration an invoice cannot create a tax point, so strictly the date goods were made available, services were performed or payment was received governs, though invoice dates are often used as a practical approximation.

Other evidence HMRC accepts includes a reconstructed schedule of sales signed by the trader, and business bank statements where the trader confirms whether takings were banked gross or net and when. A trader’s own admission of the date they became liable can also be used (VATREG26300). For a forward look case HMRC must show contracts, orders or correspondence that existed at the time (VATREG26250).

How is the VAT on past sales calculated?

HMRC calculates the arrears from the effective date up to the date of notification, as precisely as the information allows. The key rule at VATREG26550 is that the price you charged is treated as including VAT unless VAT was charged separately. In other words, VAT is carved out of your gross takings rather than added on top.

At the standard rate of 20% the VAT fraction is one sixth of a VAT inclusive amount, as Notice 700 paragraph 7.3.1 explains. Only positive rated sales carry VAT; Notice 700/1 paragraph 14.1 refers to VAT on the positive rated taxable supplies made from the correct date, so zero rated sales produce no arrears.

Several adjustments can reduce the bill:

  • Input tax. You may offset VAT on costs for which you hold VAT invoices, under the normal rules for VAT paid before registration (Notice 700/1 paragraphs 4.6 and 5.2). See reclaiming VAT on costs before registration.
  • Timing. A supply made before the effective date but invoiced after it is excluded from the arrears, because a later invoice cannot create a tax point.
  • Margin schemes. Arrears are not reduced for a second hand margin scheme unless you can produce evidence of purchase and sale and make a written claim in substantially the form of a scheme stock book.

HMRC’s power to go back is long. Section 77(4) and (4A)(c) of the VAT Act 1994 allow an assessment up to 20 years after the end of the period where VAT has been lost through a failure to comply with a notification obligation, and VATREG26400 refers to arrears for the past twenty years in these cases. More on time limits is in how far back HMRC can go.

What penalty can HMRC charge?

A failure to notify on or after 1 April 2010 is penalised under Schedule 41 to the Finance Act 2008 (Notice 700/1 paragraph 4.6). The penalty is a percentage of the potential lost revenue, which for VAT registration is the VAT you were liable for from the date you should have been registered to the day before you notified HMRC, or HMRC otherwise became aware (CH72740). The ranges in HMRC factsheet CC/FS11 are:

Behaviour Unprompted disclosure Prompted disclosure
Non deliberate, within 12 months of tax being due 0% to 30% 10% to 30%
Non deliberate, 12 months or more after tax was due 10% to 30% 20% to 30%
Deliberate but not concealed 20% to 70% 35% to 70%
Deliberate and concealed 30% to 100% 50% to 100%

A disclosure is unprompted if you tell HMRC before you have reason to believe it is about to find the failure. Where the penalty falls in the range depends on the quality of disclosure: up to 30% reduction for telling, 40% for helping and 30% for giving access to records. If it has taken a long time, such as three years or more, HMRC will usually restrict the reduction to 10 percentage points above the minimum. The wider rules are in HMRC failure to notify penalties.

Worked example: a sole trader who registers late

Illustration only. A café owner should have been registered from 1 June 2025 under the rolling test. She notices in August 2026 and tells HMRC before any contact from them. Her standard rated takings from 1 June 2025 to the day before she notified were £144,000, with no VAT shown on any receipt.

  • VAT within the takings: £144,000 × 1/6 = £24,000.
  • She holds VAT invoices for £4,000 of input tax she is entitled to deduct, so the arrears are £20,000.
  • Assume HMRC agrees the potential lost revenue is £20,000 and the failure was non deliberate.
  • Parts of the lost VAT were due more than 12 months before she disclosed. If HMRC applies the 10% to 30% unprompted range and gives full credit for disclosure, the penalty is 10%, or £2,000.
  • Had HMRC found it first, the prompted range of 20% to 30% would give a minimum of £4,000.

Because HMRC treats her past prices as already including VAT, the £24,000 comes out of money she has already received. It is not an extra charge she can now pass on to past customers who paid at the counter.

Can I avoid a penalty?

CC/FS11 says HMRC will not charge a failure to notify penalty if you had a reasonable excuse, the failure was not deliberate, and you told HMRC without unreasonable delay once the excuse ended. Relying on someone else does not automatically help: if you ask an employee or adviser to act for you, you must do what you can to make sure the failure does not happen. See reasonable excuse for how HMRC approaches this.

If you crossed the threshold only temporarily, you can ask for exception from registration even after the event. HMRC may allow retrospective exception where the facts available at the time would have justified it (VATREG19150 and VATREG26350); see exception from VAT registration.

What if the failure was deliberate?

Notice 700/1 paragraph 14.3 says that if you deliberately avoid registering you may face a penalty equal to the VAT you should have paid, and for serious offences HMRC may investigate and bring criminal proceedings. CC/FS11 adds that a company officer can be made to pay some or all of a company’s penalty for a deliberate failure in certain circumstances, for example where they gained personally.

Can I challenge the date or the penalty?

Yes. When HMRC makes an appealable decision it will tell you, and you usually have 30 days to send new information, ask for an independent HMRC review, or appeal to the tribunal (CC/FS11). Disputes often centre on the monthly turnover figures HMRC has estimated, which is why VATREG26200 asks officers to record their method. Keeping monthly sales records and a dated note of any unusual contract is the best defence.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.