Possibly late registering for VAT

[Toby1976]

Hi all,

I think I may be very late in registering for VAT, but just want to check as I think I may have been given bad advice by my accountant.

He has always told me that the registration limit is calculated at the end of the financial year, but I've recently been told by another accountant friend that it's calculated on a 12 month rolling basis. I realise he is in the right.

It looks to me as if I went over in November 2010, as for the 12 months prior to that I invoiced 70010 (I think the rate was 70000 at that time)

However, my accountant friend says that I have nothing to worry about, as if over the 12 months starting in January 2011 (when I ideally should have registered) I don't go over the limit, there is a rule which says that I don't need to have registered in January 2011.

In fact, my predicted turnover from January 1st 2011 to December 31st 2011 should be around 68K, so this sounds right.

HOWEVER - in most of the months of 2011, if I calculate my last 12 months turnover, it's actually well over the 73K limit.

He says this is not a problem - but I would just like to double check this as after my experience getting such bad advice from my existing accountant I am feeling less willing to trust anyone on this!

For reference, here are my figures from the last couple of years, with a calculation of the 12 month total to that point in the fourth column.


Month Amount 12 month total up to and including this month
Aug-09 2982.1
Sep-09 5775
Oct-09 3275
Nov-09 2200
Dec-09 3870
Jan-10 4150
Feb-10 6400
Mar-10 3950
Apr-10 8016
May-10 7900
Jun-10 3694
Jul-10 9000 61212
Aug-10 5000 63230
Sep-10 5025 62480
Oct-10 6305 65510
Nov-10 6700 70010
Dec-10 10800 76940
Jan-11 5800 78590
Feb-11 5600 77790
Mar-11 7840 81680
Apr-11 5270 78934
May-11 2800 73834
Jun-11 8750 78890
Jul-11 7005 76895
Aug-11 3675 75570
Sep-11 5825 76370
Oct-11 6500 76565
Nov-11 7600 77465
Dec-11 1500 68165



Whatever happens I will register in early 2012 - however I would prefer not to backdate my registration to January as I guess I will probably have to pay a penalty. Also I have been working for a non VAT registered charity, which means that part of my budget will be used up.

Any advice on this would be massively appreciated!

Toby

 

[Spongebob]

Undoubtedly you have been badly advised by your accountant, and you should have registered a year ago.

You will get replies here from accountants telling you that you must come clean with HMRC and pay the VAT due going back to the date when you should have registered, re-invoicing all your customers for the VAT you should have charged them at the time.

My advice is different, and will be monstered by the pedants.

Either simply register now and keep schtum - the chances of HMRC ever discovering that you went through the threshold a year earlier are slim...


...or take this opportunity of incorporating your business and setting up a limited company. Register it for VAT at once. As this is a completely new legal entity HMRC will have no reason to look back at the previous incarnation of your business. It will soon fade into ancient history.

This will save you thousands. I do not see why you should have to pay for the mistake of an incompetent accountant.

 

[David Griffiths]

The choice is fairly clear.

a) Do it properly and pay the tax. Spongebob can come back with his usual gratuitous insults when this advice is given.

or

b) Make a false statement to HMRC to reduce your outgoings and run the risk of being found out and incurring the associated penalties

 

[Toby1976]

Hi David and Spongebob,

Thanks for your advice - extremely helpful.

Spongebob - to clarify, I am already a limited company. I do a return every year, so surely HMRC will see immediately when I do my 10/11 return that I went over in January?

Also, I just want to confirm. As I mentioned, my accountant friend (not my actual accountant) who is an experienced partner in an established business has advised that according to the rules, I don't need to register because I will have not invoiced more than 70,000 in the next 12 months from January 2011.

What are people's thoughts on this? Do you disagree with this advice? I can't find the rule anywhere on the web but I think he's referring to the written rules.

Last question, if I registered in say January and admit that I went over a year ago, I will have to pay a penalty. If I don't admit I went over, and they find out, either now or in say a year's time, will there be any extra penalty to pay?

Again, any thoughts would be appreciated.

All the best,

Toby

 

[Philip Hoyle]

The exemption for not registering if your t/o won't exceed the threshold again is for a temporary blip. In your case, it's not a temporary blip as there were twelve months when the rolling 12 month period exceeded the threshold. You also have to tell HMRC and complete a VAT reg form the month it first happens and have to apply for the exemption. Not only are you 12 months late in telling them, it clearly wasn't a blip. But, whether or not you would have been eligible for the exemption is a bit of a red herring because you didn't apply for it when you should have done a year ago.

At the end of the day, the law required you to tell HMRC and complete a VAT registration application around a year ago, you didn't do that, so you've broken the law. Whether or not you wish to put this right, or whether you want to take the risk of it never being discovered is something only you and your moral compass can decided.

Just a word of warning though. If you don't declare, then you may well find that your accountant will make a report under the money laundering/proceeds of crime laws which is is legally bound to do without telling you he's doing it. Of course, again, your accountant may not notice, and even if he does, then he may not report. Again, it's a matter of whether you're found out or not. Please be aware that accountant's don't have any choice in this kind of matter - an accountant would be at risk of criminal prosecution himself if found to have suggested, condoned or ignore any criminal behaviour of a client. Spongbob can give advice re breaking the law, because he's not a regulated accountant. An accountant has to work within the law.

As per HMRC website re temporarily exceeding VAT threshold:-

"If you've gone over the threshold for registration temporarily

You can apply for exception from registration if:
you have to register for VAT because the value of your taxable supplies in the previous 12 months has exceeded the registration threshold of £73,000 (including the value of supplies made by a VAT-registered business that you have taken over)
you can demonstrate to HMRC that in the longer term you will only be trading below the de-registration threshold of £71,000

You can ask HMRC if they can make an exception, and allow you not to register for VAT, by filling in a VAT registration form, stating why you are applying for an exception.

If HMRC agrees to make an exception and allow you not to register this time, you must let them know of any relevant change in circumstances - for example, if your turnover goes over the threshold again.

If HMRC does not agree to make an exception, you will become registered for VAT from the day you should have been registered. You will need to account for VAT from that date."

 

[Toby1976]

Hi Philip,

Thank you - that's extremely useful.

My accountant already knows - I've pointed out the issue to them already. I'm just waiting for them to get back to me after rechecking the figures.

So, it seems I will have to retroactively register, and pay the penalty (which because I'm 12 months late looks to be 10% of the VAT I should have charged minus whatever I've paid out in VAT).

It looks like this will be about 1500 pounds which isn't an unmitigated disaster but very, very frustrating when it's simply down to bad advice.

I'm guessing that the next step is to write to the revenue and own up? I've mainly worked for 3 or 4 companies since January, so can I then just issue one invoice for the whole of the VAT I should have charged since that point? Do I do that immediately or after I've received confirmation of registration from the VAT office?

Do they they invoice the penalty from me and I do I just pay it normally by cheque?

And can I confirm that January 2011 is the first month that I do it from as November was the month I went over?

Last question - there seems to be conflicting advice on the forum about whether if I'm late in registering if I can register for flat rate VAT which I think may be advantageous.

Best

Toby

 

[Philip Hoyle]

Last question - there seems to be conflicting advice on the forum about whether if I'm late in registering if I can register for flat rate VAT which I think may be advantageous.

It's conflicting advice because sometimes HMRC agree and sometimes they don't. Certainly they don't have to, so it seems discretionary that they do sometimes, which means you can't appeal if they refuse you.

Don't forget that you can reclaim input VAT on services provided six months before registration and on goods bought within 3 years ahead of registration that you still hold at date of registration, so that may help reduce your liabilities.

 

[3pic]

You cannot be VAT registered already and then try and apply a flat rate percentage retrospectively. HMRC will not allow it.

But in your case, you've never registered for VAT and so HMRC will accept your retrosecptive VAT registration and your flat rate application, no problem.

You may find the flat rate scheme will reduce your "owed VAT" substantially, depending upon your trade sector. Remember, on your 1st VAT return under the flat rate scheme you can still reclaim previously incurred input tax like any other business so you can reclaim input tax on goods still in use/stock going back 4 years and services incurred going back 6 months. Future VAT returns under the flat rate scheme deny you the right to reclaim input tax thereafter, except for capital items over £2k in value.

With this ability to recover input tax on the 1st return and also reducing the output tax becuase you're using a lower flat rate percetnage, then you will likely not owe anything or a very small amount, thus reducing the penalty further.

 

[3pic]

The option to not tell HMRC of the correct VAT registration date is an alternative, as different clients have different attitudes to risk, but what needs to be made clear is that registering at a later date (not the correct, earlier date), would put you on HMRC's radar as you would then be VAT registered and open to potential VAT inspections.

IF during a visit, the HMRC officer spots you registered for VAT later than you should have, the penalty would either be 30% (careless) or more likely in the 70% bracket for deliberate understatement of the VAT relating to the earlier period....whereas the penalty for registering at the right time is potentially nil.

Incorporating a sole trader is the least riskier avenue to take (although appreciate that is not an option for you, but commenting in case anyone else is reading this in a similar situation) as the chances of HMRC picking up on it are very slim.

 

[Be back]

thank you all replies ,that's extremely useful for me.

 

[GGGSurrey]

And always remember that if the company has lost out due to negligent advice from an accountant (and I'm not pre-judging that of course) that the accountant can be asked to recompense the company to put it back to the same financial situation it would have found itself in were it not for that advice.