Charging the wrong VAT

Employee.1 · Nov 23, 2009

Hi,

I have become aware that the company i work for is currently charging VAT on items at the wrong percentage. Can anyone let me know if this is illegal and if so what kind of implications it can have for them?

Thanks

*Edit* Just to add the company also does not provide a VAT Receipt for these items.

Zeno · Nov 23, 2009

The answer to is it illegal depends on their motivations for doing so. Whatever rate they charge on the items is the rate they will pay to HMRC so it is unlikely that they will be benefitting from this unless they charge the customer one rate and pay a different one to HMRC.

spidersong · Nov 23, 2009

Of course if they're charging 2% VAT, then HMRC will expect them to find the other 13% to pay them when they come out to visit, and will also charge penalties and interest on the underpayments.

If they're charging 20% then so long as they pay over 20% then it shouldn't have a negative impact on them, apart from the fact that they've cut off a part of their profit margin that they may or may not be able to get back.

Basically it is illegal (VAT law is after all part of UK legislation), but not necessarily criminal.

Kevin Hall · Nov 24, 2009

If the company is not providing a VAT receipt for the items it sells at the wrong VAT rate, presumably it is not an issue for the customer. (But you would need to make sure that no customers have requested a separate VAT receipt, as this could cause complications.) Incidentally, it is acceptable not to issue VAT receipts for small-value items: am I correct in assuming these items are small value?

What would appear to be happening is that the wrong rate is being entered in the records (e.g. till system, ledgers, VAT returns), so the wrong amount of VAT is ultimately paid to HMRC and the wrong net price is entered in the Statutory Accounts/Corporation Tax records.

As Spidersong says, HMRC will make the adjustment at the inevitable "routine VAT Visit" and there will probably then be additional financial penalties of up to 100% of the VAT lost (perhaps reduced depending on co-operation, intent, etc.).

The best solution would be to adjust the records as soon as possible for future transactions, and declare (by Voluntary Disclosure) the error for historic transactions. Alternatively, if the VAT error is less than £10,000, the amendment for historic transactions can be done on the next VAT return.

yorkshirejames · Nov 24, 2009

How exactly has this mistake happened, and what are the percentages?

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Charging the wrong VAT

Employee.1

Zeno

spidersong

Kevin Hall

yorkshirejames

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