late vat registration

[Richdalek]

Hello
I hope you don't mind me emailing you out of the blue?
I saw your recent post ref the person that has late registered for vat. I am in a very similar position and worried sick.
My accountant says we should have registered for vat in oct 2007. I stopped trading as a sole trader in Dec 2009. Set up limited companies which are now vat registered.
One area of business I was trading in was training actors - which I took to be non vatable. This part of the business expanded into supplying the actors for training courses with MOD, Police and HMP, taking me over the threshold. I had set the training side up as a seperate business with its own accounts etc. The other area of my business was entertainment which again was set up as its own business (neither ltd companies).
The amount of vat not charged (without us claiming any vat on our expenditure) is calculated at about £34k.
Re mitigating circumstances also: I have had 2 sisters die within that period one in oct 2007 (Arlene) where myself and my wife were partly responsible for care during terminal illness and one in oct 2008 (Bonnie). Subsequently Bonnies husband died in july this year. A pretty traumatic period, but I guess of no avail as far as mitigating circumstances.
Would the fact that I believed the training side to be non vatable count as mitigating circumstances?
My previous accountant went bust in august 2008 and I appointed the new ones in Dec 2008.

Thank you for your time and patience in reading this.

[Zeno]

I doubt you mitagating circumstances will count for much I am afraid, possibly the penalty loading but the VAT payable will remain the same.

Were you behind with your accounts so this was not picked up until recently?

[Richdalek]

yes when we got a new accountant

[Zeno]

As your were operating as a sole trader, all your business ativities would count towards the VAT registration threshold and your Vatable turnover. I assume you mean incorporated in December 2008 (You say 2009) but then this suggests that you should only have been VAT registered for around a year depending on when you registered the companies for VAT.

This suggests turnover of arround £230,000 per year? Is this accurate?

Have you considered personal tax liabilities or has this been sorted out by your new agent?

Was your previous accountant qualified as in a chartered accountant?

[Richdalek]

Thanks for your reply
Sorry - yes the incorporation was in 2008!
period over threshold was from oct 2007 to march 09 as there were some small amounts (about £6000) paid late by customers for 2008 work so the trading as period dragged on.
I used a company called abacus for the accounting. I think they are a franchise?

Personal tax liabilities are sorted and paid.

[drshadrack]

First things first. You need to establish the actual VAT due to HMRC.

Once you trip the VAT threshold any receipts will be deemed to include VAT. Obviously you can subtract any VAT incurred on expenditure in the same period.

There is sometimes scope to apply for an earlier registration date where you have incurred VAT on significant expenditure that could be offset against VAT on sales.

Where trade is liable to fluctuation you may, in certain circumstances, legitimately argue that although you exceeded the VAT threshold in a certain period you did not anticipate turnover in the following 12 months remaining above the 'deregsitration threshold' (generally 2K below registration threshold). This can delay the VAT registration date and reduce tax due and penalties.

Penalties can be reduced where the business discloses the error. Furthermore, in the current climate, HMRC is quite lenient with regard to payment arrangements.

[skakes]

Are you on good enough terms with your customers to ask them to accept a supplementary invoice to cover VAT? If they are VAT registered, they should not be out of pocket thereby. I got into this situation with VAT, assuming my commission earnings from Kleeneze were my turnover, rather than the value of my sales to customers. There are many things I curse Kleeneze for, but on this they came up trumps, letting me raise self billing invoices for several years, and sending me the cheque to cover.

Good luck with it.

[3pic]

As a sole trader providing 'tuition or education' then depending upon the exact detail, this activity may be seen as an exempt activity.

The Shorter Oxford English Dictionary defines 'education' as the instruction, schooling or training given to the young (and, by extension, to adults) in preparation for the work of life. The Russell Report defined it as:
‘the means, activities and processes involving learning and concerned with the developing of the ability of individuals to understand and articulate, to reason and make judgements and to develop sensitivity and creativity.’. Notice 701/30/2002, para. 5.1 states that ‘education’ means a course, class or lesson of instruction or study in any subject whether or not that subject is normally taught in schools, colleges or universities; and regardless of when and where it takes place.

Exemption also applies to a supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer (VATA 1994, Sch. 9, Grp. 6, item 2).

So as a sole trader, providing 'education' to individuals in a subject ordinarily taught at a school (and there are plenty of drama colleges out there!), my opinion is that the income earnt under the 'tuition of actors' aspect is exempt and so not liable to any output tax. As an aside, once you incorporated, that supply is no longer exempt as you are not delivering the tuition in a personal capacity but now via a Ltd entity.

The expanded activity of supplying actors to other instituitions sounds much more like a supply of personnel and therefore standard rated to me.

As Zeno has correctly noted, all the 'trades' under a sole trader count as one entity for VAT purposes. So first thing, seperate out the tuition income from the staff agency income. We can forget about the tuition income as not relevant anymore as it doesn't count towards the VAT threshold (assuming my assertion that you are supply private tuition is correct)

Next, with the agency income and entertainment income(?), determine at what point that income went over the VAT registration threshold and your VAT registration date will be the month following that date. VAT is then due on any turnover AFTER that effective registration date.

If you then opt for flat rate scheme you may mitigate your overall libaility as you'd only need to declare the flat rate percentage to HMRC, not the full 17.5% - so if your sector was say 9.5% you'd only declare 9.5% of your agency turnover to HMRC. You can still reclaim input tax incurred upon first registration on the flat rate scheme which will further reduce your overall liability.

Then, as others have posted, you may also be able to invoice your past client (if they are VAT registered themselves), penalties can be mitigated by half for disclosing to HMRC the problem, payment terms can be arranged over a few months too. It should certainly mean a little less worry. As for the bereavements, as Zeno said, it is worth a punt to maybe reduce the penalty to Nil, but HMRC will not reduce the VAT you owe them, regardless of circumstances.

Does any of that make sense?. Are you treating ALL your income as VATable or just your agency/entertainment work?.

[Zeno]

3pic has said things better than I could but you may like to consider if you should be taking action against your previous agents. Even if they have gone out of business (Very,very unusual for a chartered firm) you can still persue claims on their professional indemnity insurance.

[Spongebob]

I'm a bit confused.

Have HMRC actually caught up with you and made an assessment for unpaid VAT?

Or have you merely been told by your accountants that you should have registered a year or so before you ceased trading as a sole trader.

If it is the latter then I would just keep schtum. It is difficult to see how at this stage HMRC would ever get wind that you should have been registered before the formation of the company.