What Happens if I Charge VAT and I’m not VAT Registered?

Implications of charging VAT when you’re not VAT registeredShould I charge VAT if you’re not VAT-registered? First and foremost, it’s essential to understand that you shouldn’t impose VAT if your enterprise isn’t VAT-registered.

Nonetheless, businesses that are VAT-registered are obligated to apply VAT to their taxable goods and services. They can also recover the VAT they’ve disbursed that’s associated with the items they’ve levied VAT on.

Anyone who presents an invoice with VAT when they aren’t registered for VAT is subject to a penalty as per paragraph 2, Schedule 41, Finance Act 2008. This fine can amount to as much as 100% of the VAT indicated on the bill.

A base penalty of 10% of the VAT is applicable even when there’s a voluntary revelation to HMRC about an inadvertent error, as opposed to intentional and hidden actions

Implications of charging VAT when you’re not VAT registered

If you levy VAT despite not being VAT-registered, you’re treading on risky ground. It’s imperative to understand that businesses not registered for VAT are prohibited from charging it. Doing so can lead to severe legal and financial repercussions.

According to paragraph 2, Schedule 41 of the Finance Act 2008, anyone who issues an invoice indicating VAT without being registered for it is liable for a penalty.

This penalty can be as steep as 100% of the VAT displayed on the invoice. Furthermore, even if the error is reported to HMRC without prompt, a minimum penalty of 10% of the VAT is still applicable, especially if the mistake was made carelessly rather than being a deliberate act of concealment

Putting Matters Right

If you’ve mistakenly charged VAT without being registered, it’s crucial to rectify the situation promptly. Firstly, it’s essential to issue a credit note to the customer and provide a refund for the incorrect VAT amount. Inform the customer about the error and advise them to adjust their VAT account if they’ve claimed an input tax deduction based on the VAT you incorrectly charged.

Simultaneously, you should proactively reach out to HMRC with an unprompted disclosure, detailing the oversight and the steps you’re taking to amend it. It’s beneficial to clarify how the error occurred, with the hope that HMRC might only impose the minimum 10% penalty.

Be aware that under paragraph 5, Schedule 11 of the Value Added Tax Act 1994, HMRC has the authority to treat the erroneously charged VAT as a debt owed to the Crown. Additionally, according to section 74(4) of the Value Added Tax Act 1994, HMRC can levy interest on the amount until it’s duly paid to them.

Is it illegal to charge VAT when not registered?

Yes, it is illegal to charge VAT when not registered, the fine for imposing VAT without registration can reach as much as 100% of the VAT listed on the bill. Additionally, there’s a base penalty of 10% for prematurely charging VAT.

Read more: Types of VAT Fraud


In conclusion, charging VAT without a valid VAT registration number tied to your business is illegal because it undermines the integrity of the tax system and can lead to fraudulent practices. VAT registration ensures that businesses are accountable for collecting and remitting the correct amount of tax to the government.

Without this registration, there’s no official record or oversight of the VAT transactions, which can result in potential revenue losses for the government and unfair advantages for unregistered businesses. Moreover, it protects consumers from being wrongly charged and ensures a level playing field for all businesses in the market.

Steve Jones Profile
Insolvency & Restructuring Expert at Business Insolvency Helpline

With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.