Owe VAT to Italy, scared about fines...

Discussion in 'Accounts & Finance' started by MB24, Jun 27, 2018.

  1. MB24

    MB24 UKBF Newcomer Free Member

    11 1
    Hello all,

    I run a UK based e-commerce business that sells worldwide. I've recently discovered that we passed the €35k distance selling threshold in our last financial year (May 1st 2017 - April 30th 2018) and now need to work out how to register for VAT in Italy and back pay the VAT for over £100k worth of sales to the Italian government.

    Some notes:

    • We passed the €35,000 Italian VAT threshold in July 2017

    • Our financial year runs May 1st - Apr 30th, so our last financial year (FY17-18) is the only one in which we have breached the threshold

    • Our sales in FY17-18 in Italy have been approx £100k inclusive of VAT (this is also inclusive of shipping costs, I don't know if VAT applies to shipping)

    I reached out to some Europe VAT advisors but their responses are going completely over my head. One responded with a list of potential fines we may face:

    Having in mind that your company has not reported the activity to the Italian tax authorities since approximately over a year ago, we could regularize the violation corresponding to the omitted VAT payments. It is no more possible to regularize some other violations of the VAT law like:

    -Omitted submission of the Annual VAT return (fine from 120% to 240% of the VAT resulting from the return)

    -Late registration on the VAT books of the annual sales (fine from 90 to 180% of the VAT amount related to the sales not registered on time)

    -Unregular preparation of the VAT books (fine form Euro 1.000 to Euro 8.000)

    -Late VAT registration (fine form Euro 500 to Euro 2.000).

    Are these charges realistic, and likely? If so, they seem wildly high – and would likely put us out of business. I've had 2 calls and a very long email thread with an Italian VAT advisor and I'm still nowhere closer to understanding the fines we will face, they're throwing all sorts of daunting numbers around. Further down the email, they also mentioned more possible charges:

    The risk of the company is that they will be required to pay a penalty which may be as high as 60% or 70% of the reported VAT. In case of lack of voluntary regularization or lack of cooperation these rates can be duplicated. We could try to work with our local partner and intent to reduce the rate of penalties to 6-10%, we cannot guarantee the success of that approach though as this depends from the decision of the tax authorities.

    Does anyone have experience in this process? I'd really like to get my head around what fines we are actually going to face when we approach the Italian government to try and pay taxes to them.

    Much appreciated!
    Posted: Jun 27, 2018 By: MB24 Member since: Jun 15, 2014
  2. lesliedocherty

    lesliedocherty UKBF Ace Free Member

    2,141 291
    can't wait to hear the answers, this could be an informative thread
    Posted: Jun 27, 2018 By: lesliedocherty Member since: Jun 17, 2006
  3. Mr D

    Mr D UKBF Legend Free Member

    9,716 1,011
    When exactly did you breach the threshold? Its a rolling 12 month period not a tax year.
    Posted: Jun 27, 2018 By: Mr D Member since: Feb 12, 2017
  4. MB24

    MB24 UKBF Newcomer Free Member

    11 1
    So should I be looking for the first time we passed €35k in sales to Italy in a given year? So I check the last 2 years from Jan 1st - Dec 31st to see when we went over?
    Posted: Jun 27, 2018 By: MB24 Member since: Jun 15, 2014
  5. MB24

    MB24 UKBF Newcomer Free Member

    11 1
    If I look at a Jan 1st - Dec 31st annual period, it remains that we passed the threshold in July 2017. We did a large amount of sales June/July 2017 hence why the month we crossed the threshold is the same for either period (FY or regular year)

    Hope that makes sense, and is what you meant.
    Posted: Jun 27, 2018 By: MB24 Member since: Jun 15, 2014
  6. UK Contractor Accountant

    UK Contractor Accountant UKBF Big Shot Full Member - Verified Business

    4,271 720
    Posted: Jun 27, 2018 By: UK Contractor Accountant Member since: Sep 18, 2013
  7. MB24

    MB24 UKBF Newcomer Free Member

    11 1
    Thanks for the link, that's really helpful. Am I understanding this correctly? It appears I'd be due to pay...

    1 - The €20,000 VAT owed (for example)

    2 - 1/8th of 30% of €20,000 (reduced penalty applied to base penalty for violation being within 1 year) = €750?

    Regarding the rest of the fines, I've no idea what I'd be due as we aren't even registered there for VAT yet - and I have no idea how long that process will take, so it could put us out-with the deadlines for reduced fines?

    I assume we'd be hit with the fines for:

    • Communications not filed(Annual Communication or ANR or black list)

    • Annual Returns not filed

    Also, with the returns being quarterly, we've missed ~4 of them since passing the threshold, will we face fines for all of them, or once?

    This is all a bit overwhelming for someone who isn't great with accounts, I'm determined to get it sorted out however! I REALLY appreciate your help in here!
    Posted: Jun 27, 2018 By: MB24 Member since: Jun 15, 2014
  8. Matt-LW

    Matt-LW UKBF Contributor Free Member

    80 1
    Make your case and fight your corner!

    If it was a genuine mistake/oversight and you are trying to put it right off your own back I would hope they would take that in to account.. (No experience of this though, just dealing with HMRC who have always seemed sensible and fair with TAX and VAT). And make sure you actually get as far as taking to a 'real human', not just a 'computer says No' operator... ( I had to talk to the organ grinder when one of the minions did my VAT inspection as the minion could not get his head around something fairly simple).

    Anyway, with Brexit, will they have any jurisdiction at all soon with that?!

    Posted: Jul 13, 2018 By: Matt-LW Member since: Dec 17, 2012