Looking advice on large tax bill

skea56

My partner and I own a small grocery store, and are currently in our 3rd year of trading. I have some bookkeeping experience and so in an effort to keep costs down, I have been completing our Vat returns each quarter. Our accountant has just phoned me with the news that our tax bill will be approx £8000 for last financial year!!!:eek::eek::eek: based on an apparent profit of £36K.

We definitely did not make this last year, we had estimated a tax bill of about £2500 and have this set aside.

Obviously I have been calculating our VAT figure incorrectly as this is what our accountant has to base his figures on. We have been paying Vat each quarter, which I always found strange, as our business the purchases are mostly VAT free? I had already made an appointment for after end Jan to discuss this with our accountant.

Has anyone any hints or tips, or just anything that could make me feel better, as today has proven very depressing for us.

We were to go on holiday next week, but we may have to cancel this and lose the money we have already spent on this in order to pay the remaining tax bill

Thanks in advance for any help you may provide.

sk56

Regshoe

Without knowing more it's hard to know what to say - first thought though - can you not go and talk to your accountant now to clarify what you've done wrong and what needs to be amended? You may incur extra fees for extra work, but if there are mistakes possible in the thousands it might be the most cost effective way.

Some thoughts I have though:

You say you and your "partner" I read this to mean they are your partner both personally and in a business sense. Are you operating as a partnership and submitting a partnership return? £8000 sounds about right for tax +NI on a profit of £36k, but only if it is charged against one person. If the profits were split equally between two people it would be some £2-3k lower than this, due to the availability of two personal allowances (and the NI equivalent).

Further - if this is your third year have you been making payments on account? If so you should find that you have already paid some portion of your tax for this year (though possibly not all of it if your profits have increased this year). I would expect you to have to pay half the £8k on account for 2013/14 plus whatever the balancing figure for 2012/13 is.

Of course if you have not previously had to make payments on account that could explain the size of this bill, as it would be the full bill for 2012/13 plus half again (on account for 2013/14).

Without more detail it's hard to be sure - but I return to my initial suggestion - go back to the accountant!

On the VAT front broadly speaking if you are only selling zero rated goods I would expect your VAT return to be a repayment to you each quarter (no VAT to charge, but some to reclaim on costs incurred like rent etc). If you mostly/entirely sell standard rated goods then I would expect you would owe VAT to HMRC each quarter and if you have a mix of standard and zero it may net out. There are all sorts of ways you could have made book keeping mistakes, but no easy way to be sure.

Finally if it turns out the amount to pay is correct and you will struggle to pay it then you can contact HMRC for a "time to pay" arrangement. Essentially they allow you to pay it off in installments, typically over 12 months. If this is the case contact HMRC ASAP - it is much better to do this before they start levying fines and interest.

Oh and Good Luck!

DKLS

Get yourself a better accountant.

somethingcorporate

Get a second opinion.

morgani

Good advice from Regshoe. The best thing qt this point is phone the accountant. Explain that you are awarw that it is a busy time of year for them but you were not expecting such a high profit or tax bill so you would like to talk things over.

They may need to call you bk but explain about your holiday.

other have suggested a poor accountant which may be the case but may not be as well. Go back to them first. Dont go and get a second opinion yet as that will be just more money.

if your accountant cannot take your concerns seriously and help you understand why of they can understand if something is wrong or missed then may be the time to move on.

chrismac1

Sense check your VAT returns!

Suppose you have £60k of takings in a quarter, of which either your electronic till or your knowledge of stock purchases gives you a 50-50 split between 0% VAT sales and 20% sales.

Some other assumptions which are generally true of your sort of store is that stock levels are pretty constant and you pay your suppliers roughly the same number of days after deliveries each quarter. If these assumptions are not correct then what follows is also incorrect.

£60k of takings, of which 50% were zero rated means output VAT was £5k.

Let's assume your average Gross Margin is 50% so that means you spent £30k on stock purchases, you are then claiming back £2.5k on that.

In addition you will be able to claim VAT on telephone, utilities (which could be 5% but more normally 20%), fuel for business travel, stationery, repairs and fixtures and fittings. This could fluctuate a lot, but say it is £6k for the quarter, that gives you £1k VAT to claim.

So the VAT due is 5 minus 2.5 minus 1 = 1.5.

Once you are happy the VAT is right, you can get back to what a sensible profit was from the VAT returns, adjusted for wages and depreciation and anything else not going through the VAT returns.

I invite clients in your position to ask 1,000 questions. If you can't understand a given number in the accounts it is my job to give you the evidence that it is correct, or put it right if it is not.

Every client gets a PDF of what I have coded to drawings - or Director's account in the case of a company. If you don't have this then ask for it. The most likely error is that something has been coded to drawings because that's what it looks like, but it is in fact a bona fide business expense.

longforgotten

You could do a quick check of what your VAT returns tell you.


Add up the sales net of vat for the four vat quarters that make up your accounts year.


Add up the purchases net of vat on those four vat quarters, add on employees wages and any other expenses you have not shown on your vat return plus the depreciation figure that your accountant has shown in your accounts.


What is the result.... compare the figures you've calculated with the figures in the accounts your accountant has given you.


This obviously just gives you a comparison.


If you're sales are mostly zero rated and you've been paying monies over to the vat man something is wrong somewhere. Your accountant should reconcile the sales per your vat returns to the sales in your accounts so you could ask for that too.

skea56

Thank you to everyone who took the time to reply and give advice.

We did eventually get the matter sorted, our tax bill came to about £3.5K. The discrepancy occured due to confusion over a joint account held by both of us for household bills and deposits that I had made to cover my costs were being included in his Sales figures.

The actual final figure for 12/13 year was £2300 but because it was our first year of making profit, the very nice taxman took half that again, hence the £3500 figure.

I am meeting our accountant this week to sort out our bank accounts - it really is a bit messy with regards to joint accounts and transfers etc so they will need to be cleaned up so we don't get this same shock next year!

Thanks again for everyones help

sk56