Errors on VAT Returns

Discussion in 'Accounts & Finance' started by KimLynn, Feb 2, 2011.

  1. KimLynn

    KimLynn UKBF Newcomer Free Member

    Posts: 11 Likes: 0
    Hi,
    My Husband set up business as a sole trader in January 2009.He then registered for VAT in October 2009.
    The first 2 returns, December and March were both fine as I had done them and double checked everything.
    I then had a breakdown in May and the books were passed on to a family member who kindly offered to help. She told me she knew what she was doing and not to worry and at the time I didn't have the strenghth to even if I wanted. So she carried out the returns in June, September and December 2010.
    I then decided that I could cope with doing the admin again the start of January this year. I recieved an error letter on the December return and did think that the copy of the return they sent wasn't quite right but because my Husband had brought a van through finance I thought that had given the large amount for refund.
    I then contacted HMRC to find out why the refund was taking so long and they told me that we needed to be inspected to make sure the return was right. This is when it all goes wrong.
    I collected the accounts from the aunt last week and was shocked to see that all the invoices and receipts that had been passed to her had not been written down in the account book. Needles to say I have no idea how she got to the amount on the vat return.
    We have now had a major falling out over this and I am really worried about the inspection this Friday.
    I have updated the accounts and have seen that the 3 returns, all made by her, are all wrong. A reclaim of £4300 in September was payed by HMRC, which shouldn't have been paid at all and she came to the figure of £10300 reclaim on the December return. I just have no idea where she got these figures from!
    I have worked out that we need to pay £6000, that's including the £4300 from September. We just don't have this kind of money especially as I am still on a phased return to work through my illness.

    My question is are we going to get a large penalty and interest charge for this? Am I going to be in trouble? How long will we get to repay this debt as we can only really afford £50 per week?

    You may ask about where my Husband was in all this. He made it clear from the start of becoming self employed that because he didn't understand anything about book-keeping he would leave everything to me. So all he did was pass invoices and receipts to the aunt and wasn't aware that she wasn't doing it properly.

    Help or advice anyone?
     
    Posted: Feb 2, 2011 By: KimLynn Member since: May 27, 2010
    #1
  2. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

    Posts: 9,877 Likes: 1,934
    Hi Kim - first of all can I ask do you use an accountant?
     
    Posted: Feb 2, 2011 By: MyAccountantOnline Member since: Sep 24, 2008
    #2
  3. KimLynn

    KimLynn UKBF Newcomer Free Member

    Posts: 11 Likes: 0
    Yes, we do but only for our annual tax return.
    This is how I also know that the returns up until end of accounting year 09/10 are correct has he checked that at the same time as doing my Husbands return.

    He has just told me to be honest and say that I couldn't cope with doing the admin and passed it onto my Husbands aunt who said she could do it.

    I have also phoned HMRC to tell them that the books have got into a mess and was told to wait until the inspection on Friday.

    I'm really worried about this and just coming out of severe depression I don't know how I'm going to cope if I end up being in trouble and getting a hefty penalty.
     
    Posted: Feb 2, 2011 By: KimLynn Member since: May 27, 2010
    #3
  4. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

    Posts: 9,877 Likes: 1,934
    It's a shame your accountant isnt giving you more support on this.

    First of all dont panic!

    Next sit down and work out exactly what entries should have been made on your husbands VAT returns - making sure its 100% accurate. If you need a few more days ask HMRC to postpone the visit for a few days but what you want to do is to make sure its correct. Then make a full disclosure to the VAT inspector explaining exactly what has happended.
     
    Posted: Feb 2, 2011 By: MyAccountantOnline Member since: Sep 24, 2008
    #4
  5. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

    Posts: 9,877 Likes: 1,934
    You may want to read the HMRC guidance regarding VAT errors here
     
    Last edited: Feb 2, 2011
    Posted: Feb 2, 2011 By: MyAccountantOnline Member since: Sep 24, 2008
    #5
  6. cgayork

    cgayork UKBF Newcomer Free Member

    Posts: 14 Likes: 1
    My advice for this situation is:
    - stall the visit for a few weeks, say you want your accountant to be present & he isn't available that day.
    - then make an appointment to see your accountant, take everything into him & get him to work out exactly what it should have been & where the differences are. My experience in this is if you can 'help' the inspector as much as possible and basically say ' i know they were wrong, this is where and why', they will be much easier to deal with. It will also give you peace of mind to know your accountant is sitting there with you and you will already know how much VAT you owe them. If you have fee insurance with your accountant, all this work will be covered by that.
    I guess what I am saying is, make use of the professional you hired, it's their job to make you feel less scared about all of this.
     
    Posted: Feb 2, 2011 By: cgayork Member since: Jan 19, 2011
    #6
  7. elainec100@cheapaccounting

    elainec100@cheapaccounting UKBF Newcomer Full Member

    Posts: 13,271 Likes: 2,878
    get your accountant involved now and have them at the inspection.

    Work out the errors and declare immediately.

    What happened to the refunds?
     
    Posted: Feb 2, 2011 By: elainec100@cheapaccounting Member since: Nov 4, 2005
    #7
  8. KimLynn

    KimLynn UKBF Newcomer Free Member

    Posts: 11 Likes: 0
    Just from me actually writing down the payments and receipts in the books I can see what we owe in VAT and what should have been on the returns.

    Our accountant has already said that he doesn't need to be at the inspection as he has no involvement in our returns, only checking them at the end of the tax year. To be honest we can't really afford for him to be there either.

    With regards to the refunds, the only one we actually received back was the £4300 back in September.
    When my Husband was paid I always transfer tax and the vat into another account and have told him that what is in his account is OK to spend on materials or a bit of free cash for himself. Needless to say his Aunt wasn't even bothering to do this for me. So that refund has basically been spent on racking for his new van and some personal items.

    I have had to arrange for extra time to pay his tax bill this year also.

    I just don't know how we are ever going to pay this money back with our circumstances at the moment.
     
    Posted: Feb 2, 2011 By: KimLynn Member since: May 27, 2010
    #8
  9. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

    Posts: 9,877 Likes: 1,934
    I'd check the policy terms very carefully if you have such insurance - its generally only for VAT Enquiries not routine inspections.
     
    Posted: Feb 2, 2011 By: MyAccountantOnline Member since: Sep 24, 2008
    #9
  10. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

    Posts: 9,877 Likes: 1,934
    Do you actually know as of today exactly how much VAT is outstanding due to the errors made? You mention £6k in your original post.
     
    Last edited: Feb 2, 2011
    Posted: Feb 2, 2011 By: MyAccountantOnline Member since: Sep 24, 2008
    #10
  11. elainec100@cheapaccounting

    elainec100@cheapaccounting UKBF Newcomer Full Member

    Posts: 13,271 Likes: 2,878
    With respect - I do not think you can afford not to have your accountant involved in this.

    The sums you quote are not small and I suspect that the refund have triggered this visit as they are large and out of the ordinary.

    I really would suggest getting a suitably experinced person to handle this given the new penalty regime.

    I would even go on to suggest that such a person could save you in the long run as they will be able to plead your case.

    Our vat expert is Steve Kettle - he could help.
     
    Last edited: Feb 2, 2011
    Posted: Feb 2, 2011 By: elainec100@cheapaccounting Member since: Nov 4, 2005
    #11
  12. KimLynn

    KimLynn UKBF Newcomer Free Member

    Posts: 11 Likes: 0
    The exact amount I have down due to errors is £5033. I have added extra incase of a penalty charge, but don't really have any idea of what the charge will be.

    I am frightened with this visit, but would my accountant be able to tell them anymore than what I can? Especially mine who doesn't seem that interested or is he just trying to save me some money as he knows that he can't really do anything?
     
    Posted: Feb 2, 2011 By: KimLynn Member since: May 27, 2010
    #12
  13. elainec100@cheapaccounting

    elainec100@cheapaccounting UKBF Newcomer Full Member

    Posts: 13,271 Likes: 2,878
    As i said - get someone who is used to dealing with this.

    Not wishing to scare you here is the new penalty regime ...

    Penalties for errors on returns, payments and paperwork

    Penalties can be charged if there are errors on returns or other documents which:

    • understate the tax
    • misrepresent the tax liability

    What 'reasonable care' means

    Every individual or business is expected to keep records that allow them to provide a complete and accurate return. HMRC also expects them to check with their agent, or HMRC, to confirm the correct position, if they are not sure.
    However, 'reasonable care' is different according to each client's circumstances and abilities. For example, a client with relatively straightforward tax affairs may only need a simple system of record keeping that is regularly updated. A large business with complex tax affairs is expected to have a more sophisticated system that is well-managed.

    How the inaccuracy penalty is calculated

    If a penalty arises because of a lack of reasonable care, the level of the penalty will depend on the amount of the extra tax due and the reasons for the error. For example:

    • If a penalty arises because of a lack of reasonable care, the level of the penalty will depend on the amount of the extra tax due and the reasons for the error. If the error is careless, the penalty will be between 0 and 30% of the extra tax due.
    • If the error is deliberate, the penalty will be between 20 and 70% of the extra tax due.
    • If the error is deliberate and concealed, the penalty will be between 30 and 70% of the extra tax due.
    The penalty can be reduced if you or your client tells HMRC about the error. HMRC may make further reductions depending on the quality of the disclosure. Penalties can be reduced by:

    • telling HMRC about the errors
    • helping HMRC work out what extra tax is due
    • giving HMRC access to check the figures
    see full info here ...

    http://www.hmrc.gov.uk/agents/penalties.htm

    an experienced accountant e.g. our Steve Kettle for vat - will be used to pleading a case and negotiating the penalty.

    Given the perentage range and what you have said my view is that you would be better off with representation as I have said.

    I shall now butt out as I can offer no more :)

    Good luck with it
     
    Posted: Feb 2, 2011 By: elainec100@cheapaccounting Member since: Nov 4, 2005
    #13
  14. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

    Posts: 9,877 Likes: 1,934
    As I mentioned its a real shame your accountant isnt helping you but at this stage my advice is to double check your figures (it really would have been good for your accountant to have reviewed them in the circumstances) and just be entirely honest with the VAT Inspector explaining fully the circumstances.

    VAT Inspectors arent always as bad as people imagine, they have a job to do and if you can make it as easy as possible for them they will generally be decent and helpful in return.

    Your husband does then need to look at all ways possible of getting the VAT money in place now - dont leave it until you start getting VAT demands. As a very last resort HMRC will discuss payment arrangements but you need to show you have tried all other possible sources first.
     
    Posted: Feb 2, 2011 By: MyAccountantOnline Member since: Sep 24, 2008
    #14
  15. David Richards

    David Richards UKBF Newcomer Free Member

    Posts: 509 Likes: 157
    I agree with Elaine - having an accountant there really will be money well spent.

    You are obviously very stressed and worried by the thought of this visit. An accountant will have seen many similar cases and have a lot of experience of dealing with HMRC and inspection visits.

    If only for the peace-of-mind of knowing you've got an expert in your corner, to 'fight your battle' - the cost will be worth it.
     
    Posted: Feb 2, 2011 By: David Richards Member since: Mar 17, 2010
    #15
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  16. paulears

    paulears UKBF Ace Free Member

    Posts: 1,716 Likes: 357
    A good friend was VAT inspector until he retired. He's a really nice bloke and told me that rarely do they come across heavy handed. I'd bet that once you explain the circumstances, they'll simply accept you've messed up, and work with you to produce a timescale to get it fixed and checked. They will be more concerned that your systems are adequate to prevent it happening again. If you have broken the rules and there's a penalty to pay, just accept it and move on. You will probably find that once they understand what is happening, they'll not treat you like a money laundering criminal, just somebody who circumstances got to a bit!
     
    Posted: Feb 2, 2011 By: paulears Member since: Dec 29, 2009
    #16
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  17. KimLynn

    KimLynn UKBF Newcomer Free Member

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    From the time of the visit on Friday, how long will it take them to tell us what we have to pay and how long we have to pay? Do they want the money within several weeks?
     
    Posted: Feb 2, 2011 By: KimLynn Member since: May 27, 2010
    #17
  18. MyAccountantOnline

    MyAccountantOnline UKBF Legend Full Member

    Posts: 9,877 Likes: 1,934
    You already know what VAT you have to pay so assuming HMRC agree your errors, and dont find anything else, they'll send you a letter following the visit (usually within about a week) setting out this and any other matters which have arisen following the inspection.

    You'll then get an assessment for the tax plus any penalties and interest which will be due. In my experience you'll have the assessment within 2 to 3 weeks of the visit.
     
    Posted: Feb 2, 2011 By: MyAccountantOnline Member since: Sep 24, 2008
    #18
  19. KimLynn

    KimLynn UKBF Newcomer Free Member

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    I assume this assessment is like a bill/demand?
    How long do we have to pay this?
     
    Posted: Feb 2, 2011 By: KimLynn Member since: May 27, 2010
    #19
  20. Amtashy

    Amtashy UKBF Newcomer Free Member

    Posts: 7 Likes: 4
    I know you have been unwell but come on people.

    You had a return done by a family member with a refund due to you of £4300. Surely when you saw you had this amount you should have a rough idea if this was due or not, after all it must have been a major purchase to get this amount refunded to you.

    It was only when you tried to claim another 10k in decmber and they stopped it and ordered an inspection that you suddenly realise its a mistake and should not have been anything due at all.

    Considering you said your finances are not great at the monent surely you would know if a repayment was due to you or not.

    When ive got a genuine refund due to me from a big purchase my vat return is always done on the first day of the month after the period. When i owe them its the last day of month...... Ill or not you know if someone owes you this much money, especially if your skint.
     
    Posted: Feb 2, 2011 By: Amtashy Member since: Feb 2, 2011
    #20