Help with VAT owed to HMRC sole trader

Discussion in 'Accounts & Finance' started by Clairew1, Jan 20, 2020.

  1. Clairew1

    Clairew1 UKBF Newcomer Free Member

    6 0
    Hi. Newbie here and this is a cry for help for my Mum.
    My mum is a sole trader cleaning business which I now manage for her as she is not mobile anymore. I have my own commercial cleaning business.. seperate..
    Dad does the accounts. Usually very good!!.

    Mum recieved a compliance Vat check back in October 2019 which has now revealed they were £2000 over the Vat threshold for 2017 and £6000 over for 2018 they have now been hit with a bill of £30000 and £6000 penalty. They can not afford to pay this and are now worried they wont get TTP and dont want to go Bankrupt. There in their late 60s and 70s so you can imagine really worrying.
    They have now instructed an accountant who has advised they should go back to all the clients and ask if they will pay what's owed from 2017?. They are all VAT eligible. We are concerned we may lose these long standing clients of 12 years?. If we ask for it. What do you think???.
    This has been a genuine mistake.

    Mum provides a lot of stock such has consumables. Hand towels soaps and toilet rolls. for all clients and didnt realise that this would be classed as profit as she buys it and charges them on invoice then receives the money back from the client. Also a few times they had the carpet cleaned from a sub contractor but the cost went through her books.
    What can she do I dont know how to help. She isnt really earning very much anymore due to having employees and myself cleaning. There is no way they can pay this back over 12 months. Really wish she had gone ltd. Very hard lesson to learn.
    All advice welcome.
     
    Posted: Jan 20, 2020 By: Clairew1 Member since: Jan 20, 2020
    #1
  2. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    3,347 407
    Options:

    1. Challenge the VAT/penalties/interest with the help of the new accountant (I assume this is not possible or suspect you would have mentioned this)
    2. Find funds to pay
    3. Agree a TTP with HMRC

    If the above are not possible take insolvency advice to consider:

    4 Bankruptcy
    5 an IVA

    You may also want to post this under the insolvency section of the forum
     
    Posted: Jan 20, 2020 By: Lisa Thomas Member since: Apr 20, 2015
    #2
  3. Clairew1

    Clairew1 UKBF Newcomer Free Member

    6 0
    Hi.
    The Accountant is going to put a letter together to HMRC and see if they will take the penalties off as they have said it was a mistake. I wouldn't mind but all clients are VAT liable sonit wouldn't have been a problem. Such a costly over sight.

    What do you think about asking the clients to back pay the VAT to 2017.
    Can the client reclaim the VAT back that far back?. Ir is it unlikely.

    Thanks.
     
    Posted: Jan 20, 2020 By: Clairew1 Member since: Jan 20, 2020
    #3
  4. SteLacca

    SteLacca UKBF Ace Free Member

    1,593 315
    Who were her customers? If they were VAT registered business then it's no skin of their noses to pay the VAT that should have been charged now. They will simply reclaim it anyway.
     
    Posted: Jan 20, 2020 By: SteLacca Member since: Jun 16, 2016
    #4
  5. Clairew1

    Clairew1 UKBF Newcomer Free Member

    6 0
    Would prefer not to say names but they are all wealthy companies. I'm just concerned as I'm the one that has to face them and we are also concerned that they may decide to go elsewhere.

    New to all this. Will they definitely be able to reclaim the VAT back. obviously if this gets paid by my parents they cant get it back and may been they loose their home. We have been supplying these clients for over 12 years and we have very good client relationship. Scared this could be lost!!
     
    Posted: Jan 20, 2020 By: Clairew1 Member since: Jan 20, 2020
    #5
  6. SteLacca

    SteLacca UKBF Ace Free Member

    1,593 315
    If they are VAT registered then yes. They honestly probably won't bat an eyelid, though you will have to supply them with a VAT invoice so that they can claim.
     
    Posted: Jan 20, 2020 By: SteLacca Member since: Jun 16, 2016
    #6
  7. Mr D

    Mr D UKBF Legend Free Member

    18,969 2,202
    Wealthy companies is irrelevant. Company being messed about because of a contractor's own problems may annoy them. Whether enough to switch suppliers for that service is open to question.

    Choice between getting payment alongside losing contract or not getting payment and owner (your mum) having to pay that VAT bill.... - which is better?
    Business is risk, could be it doesn't affect relationship at all. Or could lose it.
     
    Posted: Jan 20, 2020 By: Mr D Member since: Feb 12, 2017
    #7
  8. Alison Moore

    Alison Moore UKBF Regular Full Member

    120 13
    If all your mums clients are VAT registered she should be able to put in a VAT bill for the VAT owed. The clients can claim it back anyway, so it shouldn't effect them too much other than a bit of extra admin. Depending on the size of the companies, it might be worth mentioning it to your mums contact there so she can explain what has happened and so her contact knows to approve the bill when it comes in. Most will be understanding and I doubt it would jeopardise the relationship if your mum has always done a good job and they are happy with her work.
     
    Posted: Jan 22, 2020 By: Alison Moore Member since: Aug 4, 2016
    #8
  9. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    3,347 407
    It seems to be you don't have much choice - this is the last resort or business will be lost anyway so worth a shot.
     
    Posted: Jan 22, 2020 By: Lisa Thomas Member since: Apr 20, 2015
    #9
  10. Clairew1

    Clairew1 UKBF Newcomer Free Member

    6 0
    Thank you. This is very true and exactly what we have said. Letters are going out this week.
     
    Posted: Jan 22, 2020 By: Clairew1 Member since: Jan 20, 2020
    #10
  11. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    3,347 407
    Good luck.
     
    Posted: Jan 22, 2020 By: Lisa Thomas Member since: Apr 20, 2015
    #11
  12. Alison Moore

    Alison Moore UKBF Regular Full Member

    120 13
    Great! The letters will help with your negotiations with HMRC too as they'll be able to see that you're being proactive in resolving the issue and not just ignoring it.
     
    Posted: Jan 22, 2020 By: Alison Moore Member since: Aug 4, 2016
    #12