Vat

ryanhariiscf

I didn't register for VAT and my trunover was around 100k I am now being investigated. Im self employed all my bussiness contacts are with one company only. Which is VAT registered. Will i have to pay penalty even no revenue was lost because the company would have claimed it back?

Any

I take it you supply to them? You don't mention whether the one company is to supply to or to purchase from...

If you didn't issue to them VAT invoice then they shouldn't claim VAT on your supplies. So that side is their problem.

However you most likely will be fined because you MUST register for VAT if your turnover is over £67000. That is the law.

ryanhariiscf

Any wrote: »

I take it you supply to them? You don't mention whether the one company is to supply to or to purchase from...

If you didn't issue to them VAT invoice then they shouldn't claim VAT on your supplies. So that side is their problem.

However you most likely will be fined because you MUST register for VAT if your turnover is over £67000. That is the law.

i supply them they a a muti million pound company. I sell them software which i write.

JasonLVC

You have a legal obligation to register for VAT once your turnover exceeds £67k in any twelve month period (and the threshold was a little less going back each year so you may need to have registered earlier than you think).

HMRC will determine when you should have been registered from and then from that date onwards, any invoices you raised (which would have been without VAT) will be seen by HRMC as VAT inclusive and they will calculate the VAT fraction of that and want this from you.

Say your turnover was £100k in year Jan-Dec 08. You went over the £67k limit say in June 2008. Income before that date is 'safe' and not subject to VAT.

Any income after that date is VATable so £100k turnover less £67k = £33k of sales that should have VAT on them, but did not have VAT as you didn't charge it/register for VAT.

£33,000 x 7/47 =£4,914.89 which is the VAT element of £33,000 and will be the amount that HMRC will want from you. They may also insist upon a penalty for late registration and will certainly want interest on the VAT you haven't paid over (ie, £4,914.89 x say 4% = £196.00 but it is a bit more complicated than that as they calculate the interest daily, but you get the idea).

HMRC will register you if you are still over the turnover limit of £67k. But all is not lost. If your only customer is a multi-million company and you've confirmed they are VAT registered then you need to have a chat with them and explain what has gone on here.

You should be able to raise a VAT only invoice (using your newly gained VAT registration number) and invoice your customer for this VAT (that is, the VAT you've just had to pay over to HMRC, in our example this was £4,914.89 and then your customer then pays £4,914.89 to you which you can then keep (as you've already paid the £4,914.89 earlier to HMRC) - so the end result is you'll only be out of pocket by the penalty and interest HMRC have charged you which'll be a few hundred quid, certainly less than a grand (£1k).

You should really seek specialist advice as HMRC can be right !!!!!! when it comes to traders who haven't registered so you need to ensure they don't push too far and a good advisor can see to any penalty being mitigated by half.

The only other thought is that if you do not have much input tax to claim (that is, you do not have any VAT to reclaim on your expenditure) then going onto the Flat Rate scheme may mitigiate your liability to HMRC even further.

JasonLVC

As a side note -

Where is your customer based in the world (ie, where do you send your invoices and where is your software actually used - and that may be a different place to where the invoice goes).

Where do you write this software?. is this done in the UK or do you write the software on client site (and if client site, confirm where client is based in the world).

Thanks.

nomoneytoday

I would see a Tax expert or an Accountant as it could get messy

ryanhariiscf

JasonLVC wrote: »

As a side note -

Where is your customer based in the world (ie, where do you send your invoices and where is your software actually used - and that may be a different place to where the invoice goes).

Where do you write this software?. is this done in the UK or do you write the software on client site (and if client site, confirm where client is based in the world).

Thanks.

All used in the uk

ryanhariiscf

JasonLVC wrote: »

You have a legal obligation to register for VAT once your turnover exceeds £67k in any twelve month period (and the threshold was a little less going back each year so you may need to have registered earlier than you think).

HMRC will determine when you should have been registered from and then from that date onwards, any invoices you raised (which would have been without VAT) will be seen by HRMC as VAT inclusive and they will calculate the VAT fraction of that and want this from you.

Say your turnover was £100k in year Jan-Dec 08. You went over the £67k limit say in June 2008. Income before that date is 'safe' and not subject to VAT.

Any income after that date is VATable so £100k turnover less £67k = £33k of sales that should have VAT on them, but did not have VAT as you didn't charge it/register for VAT.

£33,000 x 7/47 =£4,914.89 which is the VAT element of £33,000 and will be the amount that HMRC will want from you. They may also insist upon a penalty for late registration and will certainly want interest on the VAT you haven't paid over (ie, £4,914.89 x say 4% = £196.00 but it is a bit more complicated than that as they calculate the interest daily, but you get the idea).

HMRC will register you if you are still over the turnover limit of £67k. But all is not lost. If your only customer is a multi-million company and you've confirmed they are VAT registered then you need to have a chat with them and explain what has gone on here.

You should be able to raise a VAT only invoice (using your newly gained VAT registration number) and invoice your customer for this VAT (that is, the VAT you've just had to pay over to HMRC, in our example this was £4,914.89 and then your customer then pays £4,914.89 to you which you can then keep (as you've already paid the £4,914.89 earlier to HMRC) - so the end result is you'll only be out of pocket by the penalty and interest HMRC have charged you which'll be a few hundred quid, certainly less than a grand (£1k).

You should really seek specialist advice as HMRC can be right !!!!!! when it comes to traders who haven't registered so you need to ensure they don't push too far and a good advisor can see to any penalty being mitigated by half.

The only other thought is that if you do not have much input tax to claim (that is, you do not have any VAT to reclaim on your expenditure) then going onto the Flat Rate scheme may mitigiate your liability to HMRC even further.

I had know way of knowing my turnover was going to be so high i invoice them two times in one month one for £15000 and the other for £85000 the company i invoiced was given an option to refuse payment if they were not happy. I only know my turnover was going do be that high until they paid me.
When i received the invoices it stated Total payment, then VAT paid £0.
Will HMRC have me raise VAT invoice with them?
it seems a waste of time.

JasonLVC

Just becuase VAT between two VAT registered businesses 'nets off' against each other does not mean you do not have to bother with it - so don't make the mistake of others and consider VAT an inconvenience - if you are a business it is a mandatory requirement if thresholds are hit.

You are liable to register for VAT within 30 days of exceeding the threshold OR when you believe you will exceed the threshold. You state you had two invoices in the month, one for £15,000 and the other for £85,000

You will need to convince HMRC that you did not know you'd exceed the threshold until the 2nd invoice was issued. How easy that is will depend upon your contract with the customer.

If you KNEW the contract was worth £100k in total, HMRC's view will be that you should have registered at the start of that contract as you would have known you would exceed the £67k limit and so the £15k and the £85k are subject to VAT and HMRC will register you from the earlier invoice date and charge you interest from that date.

If the contract is piece rate based say, then if you can convince HMRC that the £15k was all you expected and the £85k was a surprise to you later then HMRC will register you from the date of the second invoice meaning the £15k is outside the VAT registration and you'll only be charged interest from the date of the second invoice.

Be careful though - a business that doesn't know the value of it's own contracts is a bit of a weak argument. I know of no business that just 'works' for a multi-million pound customer without some form of contract and pricing agreed beforehand - I suspect you did know the value of the contract would take you over the £67k threshold at some point within a twelve month period so it may not be a good idea to go down that route of pleading ignorance...unless you really can prove you was just doing work and the £85k was unexpected.

(I'm not having a go at you, just I've seen and heard all the excuses before in my profession and none of them actually work when it comes down to negotiating with HMRC).

I suppose it doesn't matter either way, if you raise the VAT only invoice to the customer (as per my earlier email) the whole thing will go away and if you only exceeded the threshold in the one month by the issuing of two invoices then the interest on 1 month will be tiny.

Also remember. If you are VAT registered then provided you hold invoices relating to your business and they show VAT on them, then you can reclaim this VAT as input tax. So if you have bought a laptop/computer, you rent a unit, other overheads (legal/accounting fees), etc then you caan reclaim the VAt charged to you - so this'll probably net off against any interest you owe HMRC and you'll probably end up better off.

VAT's funny like that.

Oh and if you supply your services in the UK to a UK client then there is no other way around the fact that you need to register for VAT - it was just another avenue I was going to explore but no mileage in it now.