A recent case reminds us of the importance of getting VAT right. The taxpayer concluded that his eBay sales of adult motorbike protective clothing were mostly exempt from VAT as protective equipment. Supplies that are exempt from VAT doesn’t count towards the VAT threshold so the tax payer didn’t register for VAT. HMRC checked the taxpayers records and pointed out that the income was zero rated, not exempt. Supplies that are zero rated do count towards the VAT threshold and the trader should have registered for VAT. HMRC backdated the VAT registration and applied penalties, giving the trader a large VAT bill.
The tribunal accepted that the taxpayer was not a businessman and that he had not intended to avoid paying VAT. The judge had ‘considerable sympathy’ for him but said ignorance of law was not generally a reasonable excuse.
The taxpayer’s appeal was dismissed.