VAT Inspection turnover limit?

Legacy_user

Hi, do VAT Inspections only happen to businesses with a certain amount of turnover or will I be inspected even though the turnover is around £125,000, thanks!

paddyrg

VAT inspectors will inspect any business they suspect is not being properly managed, or that do regular trade with another business they investigate which they find isn't being managed accurately for VAT.

I always keep my VAT absolutely clean - I know too many people who I suspect are not trading honestly, it is only a matter of time before one gets an audit, then I can expect one!

System

I am trying to work out a system for my VAT, Im sure I will get it right, but what would happen if you underestimated VAT owed by £500, would you get jailed

pelirocco

berbastrike wrote: »

I am trying to work out a system for my VAT, Im sure I will get it right, but what would happen if you underestimated VAT owed by £500, would you get jailed

No , you might get a penalty, they may not even notice , although these days they seem more keen to find mistakes .

System

what would you say the chances of getting a vat inspection are for a turnover of £125000 business

paddyrg

Impossible to give odds, but very real. HMRC have to chase more and more leads to make up the shortfall from years of government overspending. If you underdeclared your VAT by accident, make it right this quarter, if you get audited you can point this out, and you'll be in a far better position than if you just kept schtum, probably avoiding any fines etc.

How deep will an audit go? Well, they'd probably pick a VAT period at random and ask for all your records, and check they tally. If that's fine, you're probably clear, if they find a problem they'll almost certainly dig and dig.

Just as a crude estimate, at one point I heard a figure of 'an average of one audit per 6 trading years', but they have increased, and that figure is clearly very very rough to begin with

JasonLVC

HMRC regularly reference accounts filed at companies house and also cross-reference sole trader records so a sole trader who says he's turning over £150k would flag up with HMRC if that sole trader isn't VAT registered. A person declaring a self-assessed income of say £100k would also flag up with HMRC as if you are earning £100 salary then suggests a high sales figure, etc.

If you are trading at £125k per year and the VAT registration threshold is £77k, then any sales over the £77k would be subject to VAT if HMRC identify this, so that is £48k of sales which = £9,600 VAT HMRC would assess you if they found out.

They would also assess 70% penalty of the £9,600 which is a further £6,720 but penalty can be mitigated to 50% with co-operation. HMRC can go back to any previous year to find out when you should have registered and register you from that time and then assess for the VAT due plus penalties (eg, you breached the registration threshold say in 2005, then HMRC will assess all your sales from 2005 onwards)....so the longer you leave it the bigger the problem.

So OP will not go to jail but the financial penalties are severe and I know from experience that HMRC do check and do spot these traders, but it is pot luck most of the time as to certainty they will pick you.

davec1960

JasonLVC wrote: »

If you are trading at £125k per year and the VAT registration threshold is £77k, then any sales over the £77k would be subject to VAT if HMRC identify this, so that is £48k of sales which = £9,600 VAT HMRC would assess you if they found out.

This is incorrect, all of your sales are subject to vat not just the amount above the vat threshold.

leveller2911

davec1960 wrote: »

This is incorrect, all of your sales are subject to vat not just the amount above the vat threshold.

I'm not sure your correct.You would be required to register for VAT if your turnover exceeded £77k but the moment your turnover does exceed it you don't go back to all of your previous sales/jobs and ask for the vat, you start charging vat from the point at which your turnover exceeds £77k and turnover is judged on a rolling 12 months of turnover.Once registered your required to charge vat on all sales(except vat excempt items)



But I may be wrong......Its been known on a regular basis..:D

keystone

leveller2911 wrote: »

I'm not sure your correct.You would be required to register for VAT if your turnover exceeded £77k but the moment your turnover does exceed it you don't go back to all of your previous sales/jobs and ask for the vat, you start charging vat from the point at which your turnover exceeds £77k and turnover is judged on a rolling 12 months of turnover.Once registered your required to charge vat on all sales(except vat excempt items)



But I may be wrong......Its been known on a regular basis..:D

You are wrong and right but more right than wrong. Allowing for the registration for VAT even if you think you will break the ceiling rather than when you do will make you completely right.

Cheers

phill99

paddyrg wrote: »

HMRC have to chase more and more leads to make up the shortfall from years of government overspending.

Not true. The reason the small operators get investigated is a) its easy to, b) we don't have the resources to employ professionals to hide our income, but more importantly, c) Vodafone, Boots, Amazon, Starbucks etc etc don't pay tax in the UK, so it's all of us self employed folk who have to pick up the tab.