HELP-Letter received today about VAT inspection

mumof5boys

Help please !!!! Had a shock this morning with a letter from HMRC wanting info for VAT inspection wo see if we should be VAT registered., 2 years ago we did go over vat threshold by accident, but accountant seemed to think it would be ok, this year we went very close, profit is nothing like the turn over, im proper worried now, just what if the decide we owe vat backdated 2 years ago. what do i need to watch out for. OMG no sleep for the next 2 weeks. As if business isnt bad enough at the moment.

p.s. probably posted this on the wrong place but everytime i found somewhere similar the thread was closed. i give up !!!!

sequence

Get a new accountant ASAP ?

JasonLVC

I'm a VAT expert so regardless of where you posted this query, hopefully we can resolve or calm your worries.

If you breached the threshold by a few grand previously then should be able to argue out of that. You are supposed to register once your turnover exceeds VAT registration threshold but if the turnover is a spike to the norm HMRC will allow you to not register. You are supposed to inform HMRC as to why the spike in turnover is a blip not the norm though but although you've not informed HMRC of your blip (assuming there was one), its not the end of the world.

What is your turnover? The VAT registration threshold is your sales over a 12 month period (not a year or accouning year, just a rolling 12 months nor is it anything to do with profit) so your sales Jan12 to Jan13, Feb-Feb and so on.

HMRC may have identified you as a target by your filed accounts (if a company) or your earnings if sole trader. HMRC are operating a campaign at present to identify business which are not VAT registered but should be, campaign started in March 20.13

What is your trade?

Are your customer businesses or man on the street (retail)?

When do you think you went over the reg limit?

If you went over threshold by a lot and failed to register, HMRC can force a backdated registration and you are liable for the VAT on any sales after the registration date, so you may need specialist advice/help.

Worse case and VAT is assessed, you can look at using the flat rate scheme or look to what VAT you can reclaim on purchsses to offset VAT due on sales, it all depends upon what you sell and to whom.

edit. Sorry for the typos (now corrected) was posting using my mobile phone as battery in tablet had gone, keyboard too small for me, hence missed lots of keys, it was nothing to do with alcohol at all

antonic

Listen to Jason he knows his onions !.

Is this a visit by the H(idden) E(conomy) T(eam) HET ?

What legal entity are you trading as ? (Sole Prop, Partnership or Limited Company ) ? - because your legal entity decides how HMRC will proceed IF a debt is found.

Ask WHY they have selected you to visit, they have to tell you !.

This is the start of a process which may reveal there is NO VAT to pay BUT you may end up with a Belated Notification Penalty, which will cover from the date you SHOULD have registered for VAT , because you were trading over the limit to the date you fell below the limit.

Before any VAT is demanded they will TELL you there findings and give you an opportunity to reply.

If they do find that there is VAT to pay it will be recovered by :
1) The issue of an Officers Assessment (which will cover the quarters you should have been VAT registered) and possibly

2) A Belated Notification Penalty, because you didnt register for VAT at the right time.

Compensatory interest is charged on the OA at 3%, until it is paid.

This is to reflect the VAT that should have been paid for the relevant quarters, when you were VAT Liable.

Hope this helps , but please post back if you need more help.

CKhalvashi

mumof5boys wrote: »

Had a shock this morning with a letter from HMRC wanting info for VAT inspection wo see if we should be VAT registered., 2 years ago we did go over vat threshold by accident, but accountant seemed to think it would be ok

I'd never trust an accountant who seems to think 'it would be ok', without having regulatory clearance in the first place.

We hold a tax-efficient international division in my home country (I'm non dom, so don't try this), that a small part of our turnover goes into. It's never as simple with this as 'it's ok', we explain to HMRC what we will be doing, before we do it, and make sure that only genuine non-EEC income goes through there.

This year we went very close, profit is nothing like the turn over, im proper worried now, just what if the decide we owe vat backdated 2 years ago. what do i need to watch out for. OMG no sleep for the next 2 weeks. As if business isnt bad enough at the moment.

The worst I can see you having (and please bear in mind, that we get inspected every 2-3 years for the abovementioned reasons) is 4 quarters of VAT liability, plus a little extra interest and charges, if it's deemed that you've taken the advice from a qualified accountant, HMRC are likely to be a lot more lenient than if you'd gone it alone.

I can't give an exact scenario, as the taxman usually owes us less than £1 when he comes in, so I don't know how the penalties work, however another moneysaver pops onto this board regularly (I will PM her and ask her to take a look for you), and I think she will know the answer.

What is the current company setup (Sole, Partnrship, Ltd etc), and I'll ask the company accountant, when she gets in at about 6am.

CK

CKhalvashi

My accountant has mentioned that you should be VAT registered, unless you've successfully applied for an exemption.

It may be worth checking these pages out (the three links), however it would appear that whilst what you've done is in itself legal, HMRC would have had to be notified, and permission would have had to have been granted. It would be possible that there could be penalties in this case, and that you may have a claim against your accountant for any fees (but not any tax) that may be due.

CK

mumof5boys

thanks for your replies guys, only just been back on here ! so , submitted the info as they requested, got a letter back yest saying that i dont have to register as , as i said, it was a spike, but vat to be paid 22k, then with approx 10% estimated of ex so £14k to pay ! omg, now im really in the poop, this is more than the profit that year. obviously ive got to go for the appeal work out what vat i could offset, and see the difference. im no expert as you can tell, but dont know where to turn, i have an accountant , who i thought was good, but this is major. we are in flooring industry, so turnover was up to 88k at this time, but high turnover and low profits due to not really making profit on the materials just supplying them to get the business. guys, i have no idea how/when etc i could even get this kind of money, we are relatively low income family, we get tax credit etc. this could bankrupt us . very very worried , any advice would be great

mumof5boys

antonic wrote: »

Listen to Jason he knows his onions !.

Is this a visit by the H(idden) E(conomy) T(eam) HET ?

What legal entity are you trading as ? (Sole Prop, Partnership or Limited Company ) ? - because your legal entity decides how HMRC will proceed IF a debt is found.

Ask WHY they have selected you to visit, they have to tell you !.

This is the start of a process which may reveal there is NO VAT to pay BUT you may end up with a Belated Notification Penalty, which will cover from the date you SHOULD have registered for VAT , because you were trading over the limit to the date you fell below the limit.

Before any VAT is demanded they will TELL you there findings and give you an opportunity to reply.

If they do find that there is VAT to pay it will be recovered by :
1) The issue of an Officers Assessment (which will cover the quarters you should have been VAT registered) and possibly

2) A Belated Notification Penalty, because you didnt register for VAT at the right time.

Compensatory interest is charged on the OA at 3%, until it is paid.

This is to reflect the VAT that should have been paid for the relevant quarters, when you were VAT Liable.

Hope this helps , but please post back if you need more help.

yes please any more advice would be great:A:A:A

antonic

Before I can help you further I still need to know the legal entity of the business.

If you are trading as a Sole Prop then you can be pursued for the debt.

If it is a partnership then each individual (solvent) partner can be pursued for the debt, but distraint can only be levied on partnership assets.

If it is a Limited Company then the debt belongs to the Company and the individual directors cannot be pursued.

HMRC will consider a reasonable repayment request of up to 12 months, but may consider longer in exceptional circumstances.

HMRC will have expected you to take all steps to have explored everywhere else to get funds to pay (bank etc) before considering an offer - I would suggest you put an offer in writing and the address to write to is :

DMB Campaigns
HMRC
DMB420
BX5 5AT

and include a telephone number where you can be contacted on.

If you come to an arrangement OR HMRC reject it OR you fail to stick the arrangement the enforcement options open to HMRC are :

1) Sole Prop, distraint, CCP or Bankruptcy
2) Partnership - distraint against partnership assets or bankruptcy against solvent partners
3) Ltd Co - distraint against Co assets or winding up the Company

Finally, if you make an offer it has to include all other HMRC debts AND must be sustainable.

Hope this helps.

JasonLVC

mumof5boys wrote: »

thanks for your replies guys, only just been back on here ! so , submitted the info as they requested, got a letter back yest saying that i dont have to register as , as i said, it was a spike, but vat to be paid 22k, then with approx 10% estimated of ex so £14k to pay !

Well that makes no sense, if you don't have to be registered for VAT and HMRC accept you had a spike, then there should be no VAT liability at all, so it sounds to me like HMRC have rejected your argument of turnover being a spike and they consider you to have gone over the threshold at a certain point.

With all due respect, you need to pay someone to make this go away.

Assuming VAT threshold was £77k per year (last year) and you hit turnover of £88k then you only register for VAT at the pint you go OVER the £77k, so if total turnover is £88k as you state then the only turnover subject to VAT is the difference between £77k and £88k which is £11k and 20% of that is £2.2k

Your post states you owe about £22k which means HMRC want VAT on sales of £110k which is more than you believe you've turned over, unless HMRC are saying you went over more than 12 months ago and they're backdating the VAT reg to 2010/2011 or similar.

Even so, you may still have to register for VAT if turnover was over the threshold of say £77k but the deregistration threshold is £2k less (at £75k) so if sales WERE a blip then you'd be under £76k in no time and you can deregister retrospectively.

You can still reclaim input tax on purchases 4 years priors to registration for goods/stock and 6 months for services. You will probably end up HMRC owing you money.

AndyJR81

"You can still reclaim input tax on purchases 4 years priors to registration for goods/stock and 6 months for services. You will probably end up HMRC owing you money."

This is a key point too often missed - recently got my client (a film maker) over £4,000 back as he had bought his equipment gradually over a few years prior to trading.