Late tax registration and backdating: Consequences and how to resolve them

What Happens If Registration Is Late

If it turns out you should have registered earlier, here's what that typically means:

• Corrective Returns Will Be Needed. You'll need to file tax returns for past periods to report the sales made before registration.

• Back Taxes Are Due. You're liable for tax on all sales made after crossing the threshold—or from the point of having a taxable presence in a country.

• Penalties and Interest May Apply. Tax authorities may charge penalties and interest on unpaid taxes. This varies by country.

• Audit Risk Increases. Late registration can increase the likelihood of a tax audit or review by local authorities.

• Additional Service Fees Apply. We charge additional fees for preparing and submitting corrective returns.

What The Backdating Process Involves

If a tax authority approves (or requires) a backdated registration, here's what you'll likely need to do:

• Catch up on past returns, often monthly or quarterly

• Pay any tax due, including any penalties or late interest

• Adjust your invoices, if necessary, to include tax for prior periods

• Keep clear records that match your registration and filing periods

Why It's Important to Address This Promptly

We strongly recommend resolving past tax obligations as soon as possible. Here's why:

• Tax authorities often apply higher penalties when non-compliance is discovered during an audit

• They may extend the lookback period, increasing how far back you owe taxes

• In more serious cases, they may treat it as tax evasion and pursue legal consequences

Failing to backdate a tax registration when required can also lead to:

• Loss of input tax recovery (for VAT/GST systems)

• Assessments for uncollected sales tax, which may have to be paid out of pocket

Acting now helps you stay in control and reduces the risk of future problems.

A Note on US Sales Tax and Voluntary Disclosure Agreements (VDAs)

If your late registration involves US sales tax, we may follow a different process using Voluntary Disclosure Agreements (VDAs). These can help:

• Limit your lookback period, usually to 3–4 years

• Reduce or waive penalties, and sometimes interest

• Let you come forward anonymously through a third party (like a tax advisor)

• Allow you to register backdated without triggering an audit

Example: You discover that your company had inventory in Illinois for over a year but never registered. By entering into a VDA with Illinois, you may only have to report and pay tax for the past 4 years—rather than being liable for the full time you were active.

Important: Once a state contacts you, you're no longer eligible for the VDA process. It's best to apply before you're found.

For more information on when you may need to consider backdating your registration, see our article: Late Tax Registration and Backdating: When It Might Be Relevant 

Need help?

Reach out to our team to learn more about addressing your specific situation by booking a call or creating a ticket.