Can I Get an Exception from VAT Registration?

Introduction

If your turnover has gone over the VAT registration threshold but you expect it to drop below the deregistration threshold in the next 12 months, you may be able to apply for an exception from VAT registration. This allows you to avoid registering for VAT even though your turnover has temporarily exceeded the limit. This article explains who can apply, how the process works, and what happens after you submit your application.

What Is an Exception from VAT Registration?

You normally need to register for VAT if your taxable turnover (your sales of goods or services that aren't VAT-exempt) goes over the VAT registration threshold in the last 12 months.

However, you can apply for an exception from registration if both of the following apply at the end of any month:

Your taxable supplies went over the registration threshold in the last 12 months
You can demonstrate that your taxable supplies will not go over the deregistration threshold in the next 12 months

This exception allows you to avoid registering for VAT when your high turnover is temporary or one-off, and you expect your income to fall back below the deregistration threshold.

Note that an exception from registration is different from an exemption from registration. Exemption applies in specific circumstances where certain types of businesses don't need to register regardless of their turnover.

Who Should Apply for an Exception?

An exception from VAT registration is suitable if you've had an unusual spike in turnover that pushed you over the threshold, but you don't expect this level of income to continue.

Common scenarios include:

A one-off large sale or contract that won't be repeated
A seasonal business with temporarily high turnover
A business winding down or reducing its activities
An unexpected surge in sales that won't continue

The key requirement is that you must be able to show HMRC that your turnover will stay below the deregistration threshold for the next 12 months.

How to Apply for an Exception

The application process requires you to contact HMRC and complete specific forms.

Step 1: Contact HMRC

Phone HMRC's VAT enquiries line to request form VAT1. When they ask why you need the form, explain that you want to apply for exception from registering for VAT.

Step 2: Complete the Forms

HMRC will send you two forms:

Form VAT1 – the standard VAT registration form
Form VAT5EXC – the exception application form

You must complete both forms and return them to HMRC. These forms will ask you to provide evidence and explanation for why your turnover will fall below the deregistration threshold in the coming year.

Step 3: Submit Your Application

Return both completed forms to HMRC as instructed.

What Happens After You Apply?

HMRC will review your application and respond within 40 working days. Their letter will tell you whether your application has been approved or refused.

If Your Application Is Approved

HMRC will not register you for VAT. However, this doesn't mean you're permanently exempt from registration.

You must continue to monitor your taxable turnover every month. If your turnover goes over the registration threshold again, you must either:

Register for VAT, or
Apply for exception again (if you can still meet the criteria)

If Your Application Is Refused

If HMRC refuses your application, their letter will explain the reasons why.

HMRC will use the information you provided on form VAT1 to register you for VAT automatically. You'll be required to account for VAT from the date you became liable to register.

Important Considerations

When deciding whether to apply for an exception, consider:

Evidence required: You need solid evidence that your turnover will drop. This might include sales forecasts, contract details, or information about the one-off nature of recent sales
Monthly monitoring: Even if approved, you must check your turnover position every month
Timing: Don't delay your application. If you're liable to register, you should either register or apply for exception as soon as you become aware you've exceeded the threshold
Future planning: Consider whether registering for VAT might actually benefit your business, particularly if you can reclaim VAT on purchases

The Difference Between Exception and Exemption

It's important not to confuse exception with exemption:

Exception from registration: What this article covers – when your turnover has gone over the threshold but you expect it to fall
Exemption from registration: Applies to specific types of businesses or circumstances where registration isn't required regardless of turnover

If you think you might be exempt rather than needing an exception, consult VAT notice 700/1 section 3.11 for detailed guidance on exemption scenarios.

Next Steps

Before applying for an exception, check the current VAT registration and deregistration thresholds, as these change periodically. You should also ensure you understand how to calculate your taxable turnover correctly, as this determines whether you're over the threshold.

If you're unsure whether an exception is the right choice for your business, or if you need help completing the forms, consider seeking professional advice before submitting your application.

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.