Can I apply for an exception if my turnover only temporarily exceeds the threshold?

This article picks up where another leaves off

If you're trying to understand the broader picture of what happens when you cross the threshold (whether the breach was accidental or temporary, the two paths through HMRC, and the strategic context), our article on what happens if you go over the VAT threshold by accident or temporarily covers it in detail.

This article goes deeper into the application itself: the eligibility test, the forms, the evidence HMRC wants, where applications get refused, and what happens next.

The eligibility test, in detail

An exception from registration is potentially available if all three of the following are true:

1. Your taxable turnover has exceeded £90,000 in the rolling 12 months ending at a recent month-end (the historical test has been triggered)
2. You can show that your taxable turnover will not exceed £88,000 in the 12 months following the breach
3. You can evidence the projection with documentation that HMRC will find credible

The third element is where applications succeed or fail. The first two are arithmetic. The third is judgement, and HMRC's judgement, not yours.

The exception is not available where:

• The breach was triggered by the forward-look test rather than the historical test (a different regime applies)
• Your projection lands between £88,000 and £90,000 (the figure has to be below the lower line, not just below the upper)
• You're already VAT-registered (the exception is from initial registration, not from continued registration; deregistration is the separate route)
• You can't produce credible forward evidence (where the trading pattern is unclear or your projection is essentially "I hope it'll be lower")

The forms: VAT1 and VAT5EXC

The application is made through two forms submitted together:

VAT1

The standard VAT registration form. You complete it as if you were registering normally, with one important difference: at the appropriate section, you indicate that you're applying for an exception rather than seeking actual registration. The VAT1 still has to be complete and accurate, because if the exception is refused, HMRC uses it to register you.

VAT5EXC

The exception-specific form, issued by HMRC on request. This is where the case for exception is made: the circumstances of the breach, the projected turnover for the next 12 months, and the reasoning behind the projection. The form has prompts but the substance is in what you write and the documents you attach.

HMRC issued new guidelines for exception requests on 20 May 2025, with the explicit aim of improving customer service and standardising what reviewers look for. The practical effect is that applications are now reviewed against more consistent criteria, which makes well-prepared applications more likely to succeed and weak ones more likely to be refused.

The evidence package: what HMRC actually wants

The application succeeds or fails on the evidence. A strong evidence package typically includes:

Documentation of the breach event

• The contract or order that triggered the breach, showing start and end dates, total value, and the one-off nature of the engagement
• Correspondence with the customer confirming the engagement is not being renewed or extended
• Project timeline documentation showing the work has concluded

Forward turnover projection

• A month-by-month projection of taxable turnover for the next 12 months, showing the figure staying below £88,000
• The basis for each line in the projection: existing contracts, repeat customers, pipeline, recurring revenue. "Best estimate" without basis isn't enough
• Sensitivity analysis showing what would have to happen for the projection to be wrong, and why those scenarios are unlikely

Historical context

• 12 to 24 months of turnover history showing the underlying trading pattern below the threshold
• Year-on-year comparisons demonstrating that the breach month was an outlier, not part of a trend
• Customer concentration analysis showing whether the breach was driven by a single customer (stronger case) or distributed across many (weaker case)

The explanatory letter

The letter accompanying VAT1 and VAT5EXC ties the documents together into a coherent narrative. It explains what happened, why the breach was temporary, and how the evidence supports the forward projection. A clear, concise letter is read more favourably than a stack of documents with no explanation.

Where applications most often fall short: the projection is fine in isolation, but it doesn't connect to the historical data. A business that's grown from £70,000 to £92,000 over 18 months and then claims it will fall back to £80,000 has to explain what's changed to cause the reversal. Without that explanation, HMRC reads the projection as wishful thinking, regardless of how detailed the spreadsheet is.

The HMRC response: timing and outcomes

HMRC typically responds within 40 working days of receiving a complete application. The clock starts on the date of receipt, not the date the documents were sent, and it can pause if HMRC requests additional information.

Three outcomes are possible:

• Exception granted. You stay outside the VAT system on the basis of the projection submitted. You must continue monitoring monthly, and the notification obligation reapplies if the threshold is crossed again
• Exception refused. Registration goes ahead from the original effective date (the first day of the second month after the breach), with all the financial consequences that follow
• Further information requested. HMRC writes asking for additional documentation. Responding quickly and fully tends to produce better outcomes than treating the request as an opportunity to delay

If the exception is refused: your options

A refusal is not the end of the road, but the available routes are narrower than people often assume.

Accept the refusal and register

The most common outcome. Registration takes effect from the original effective date, and you take on the consequences: backdated VAT on sales since that date, late notification penalty if the notification was itself late, and interest on the late VAT.

The financial impact can be material, but it's usually a known quantity and the path forward is operationally clear: catch up the VAT, set up MTD-compliant accounting, and move on.

Request an internal HMRC review

If you believe the refusal was based on a misreading of the facts or a procedural issue, you can request that HMRC reviews its own decision. The review is conducted by a different officer and has to be requested within 30 days of the refusal letter.

Reviews can overturn refusals, but typically only where new evidence has emerged or where the original review missed something material. A review request that simply re-argues the original case rarely succeeds.

Appeal to the First-tier Tribunal (Tax)

The formal appeal route. Available within 30 days of the refusal (or of the HMRC review decision, if you went through that route first). Tribunal appeals have legal costs, take months to resolve, and have a relatively narrow set of grounds on which they can succeed.

For most exception refusals, tribunal isn't the right route. It tends to be considered only where the amounts at stake justify the costs and where there's a genuine legal or procedural issue, not just a disagreement with HMRC's judgement.

What you need to do, step by step

1. Confirm eligibility: verify the breach was triggered by the historical test (not the forward-look test), that your forward projection lands below £88,000, and that you're not already VAT-registered
2. Notify HMRC of the breach within the 30-day deadline, regardless of whether you intend to apply for an exception. The notification is a separate obligation
3. Request form VAT5EXC from HMRC by contacting the VAT helpline or registration team
4. Build the evidence package covering the breach event, forward projection, historical context, and explanatory narrative
5. Submit VAT1, VAT5EXC, and the evidence package together, as a single coherent application
6. Track the response, respond promptly to any HMRC queries, and continue monitoring turnover monthly while the application is under review
7. If granted, document the decision and the projection it relied on. Reapply the monitoring routine from the original trigger date
8. If refused, decide quickly whether to accept registration, request an internal review, or pursue tribunal. The 30-day windows on these routes don't pause

The situations that most often turn into costly mistakes

Exception applications are won and lost on details that aren't always obvious. The situations below are where the outcome most often goes wrong:

• You have a genuinely one-off contract or event and want to make sure the application is built on the right evidence
• Your projection sits between £88,000 and £90,000 and you're not sure whether the exception is realistically available
• You've already submitted an application and HMRC has come back with questions you're not sure how to answer
• An exception was refused and you're weighing whether to accept registration, request a review, or appeal
• You're a seasonal or recurring-pattern business and the "temporary" framing is harder to evidence than it looks
• An exception was granted but circumstances have changed, and you want to understand whether the original protection still applies
• The breach was discovered some months after it occurred, and you're not sure whether to apply for an exception or take the unprompted disclosure route

Whether you're a business owner or an accountant working on a client case, we focus on the VAT questions where extra expertise pays off, and we work in plain English.