VAT help

[niknsi]

Hi,
Please can you offer some advice.
My partner and myself have two companies, a coffee shop and an outside catering company. We submit individual tax returns for both. They are completely separate from each other.
Last year we thought that, because we are in a partnership, the combined income from both companies would take us over the VAT threshold, so doing the honest thing we registered for VAT in the October 2010 and as we are in the catering industry, because separating all the different things was a complete minefield we opted into the flat rate scheme.
We filed out first VAT return for Oct to Dec 1st which showed be owed them about £800, which we couldn't afford.We then had to file our second VAT return which amounted to about £2k. We never actually went over the threshold until the end of Feb 2011, this was with the two companies combined. We then found out that we should have kept the two companies completely separate.
We thought that we were doing the honest thing and we made a mistake. We now have two VAT bills to pay, no means of paying for them for VAT that we didn't really need to pay in the beginning. We don't want to lose our business that we have both worked so hard for but it looks like this is going to bankrupt us.
We can't afford the services of an accountant. Is there any thing that we can do?????

 

[teddys]

What you are trying to say is that registering for VAT has effectively eaten in to your cash flow despite your opting for the flat rate scheme. Two possible scenarios are;

1. You have very little input VAT because most of your expenses constitute wages and/or non-VAT items.

2. May be you are under competitive pressure so you can't charge your customers 20% VAT?

You could always 'de-register' (form VAT 7) if your supplies are unlikely to exceed the deregistration threshold (currently £71,000) in the next 12 months.

 

[niknsi]

Thank you so much for your reply. In answer, yes and yes to both your scenarios. The problem that we have is that we already have these two VAT bills which we have to pay, however, we don't have the money to pay it. In fact we tried to pay part of it but the bank bounced the cheque and they have then charged us!!! Once a VAT return is submitted do we HAVE to pay it even though we were under the threshold? If this is the case then we will surely go bankrupt. No one is willing to help us being a small business..... Can a VAT bill be cancelled ?????

 

[teddys]

you could call their payment helpline 0845 302 1435 and explain the situation, and agree a payment plan. Sucharge may apply on late payment.

 

[Homshaw]

My partner and myself have two companies.

They are completely separate from each other.

We are in a partnership.

The first thing you need to establish is are you two sole traders, two limited companies, one partnership or even two partnerships.

I realise how difficult it is when you have limited funds and things like this to deal with but the question is relevant

 

[DFL Accountants Ltd]

Hi

Did you add output VAT to your sales invoices (especially relevant to the outside catering if you provide corporate catering?).
- If so then HMRC will I think take the view that you have collected that VAT from your customers and therefore need to pay it over to them - in this case you should have the money to pay HMRC as your gross income should have been higher?

When registering for the Flat Rate scheme are you certain you applied the correct rate? - did you take into account the 1% discount allowed for the first year of VAT registration?

During the period you were registered did you purchase any Capital Items costing more than £2,000 (inc VAT) - if so you can recover the VAT on these items 'outside' of the Flat Rate scheme.

Under normal VAT registration rules you can also recover the VAT on assets (fixed assets, stock, etc) you hold at the date of registration (There are time limits on how long you have owned the assets before registration but I cannot remember them off the top of my head just now). I am not sure if this type of VAT claim also applies to registering under the flat rate scheme - logically it should do, I think it would certainly be worth you checking - this could potentially vastly reduce your tax bill.

If you did not add VAT on to your sales invoices and therefore did not receive the Output VAT from your customers then you have been trading incorrectly, however if you discuss this with HMRC I seem to recall that they could decide your VAT registration was an error and cancel it.

Whatever you definitely need to contact HMRC to discuss the situation and if payment is necessary agree on a Payment Plan - and de-register as soon as possible so that further VAT due is not accruing. If you keep HMRC updated with your situation they should be amenable to agreeing a payment plan - it is in their interest for you to stay in business so they can recover any tax owed.

I hope this is of assistance.

Kind regards

 

[MyAccountantOnline]

Hi,
Please can you offer some advice.
My partner and myself have two companies, a coffee shop and an outside catering company. We submit individual tax returns for both. They are completely separate from each other.
Last year we thought that, because we are in a partnership....

Are you trading as a partnership ie preparing annual partnership accounts and tax returns or each seperate sole traders?