VAT Inspection

[Wilson2009]

Hello

This is my first post. Im gonna get straight to the point,...

I do some of the accounts in my place of work along with someone from the accounts whenever I need them. I put in invoices, sales, reconcile the bank etc. I do not do any end of year stuff just the basics as mentioned above.


We had a pre-arranged VAT Inspection the other day ahhhhhhh!!!! They were both actually really really nice. Anyway they asked me for a couple of invoices etc but they asked for one invoice that had about £400 in net column and £6000 in VAT column, (not exact amounts but near as damn it) how can there be an invoice that says that! It was then that my stomach felt like a washing machine. Anyway they said don't worry you may have made an adjustment for it. Time was running on and they had to leave and said they would come back next week to discuss things! Ives checked and there have been no adjustments made so I have over claimed VAT by £6000 !!!!!!!!!! Ive wrote down what I think Ives done and that is missed out the decimal point!!!!!!!!!! should have been £60.00 !!!!!! Holy cr*p!!! My boss was there when this was discussed and I have told them after looking into it that no adjustment has been made and that we, well I have over claimed it. They were great about it they basicaly said we all make mistakes ! (Ive been with them for years) He even joked that my new uniform would look good on me, (prison uniform!!!)


The thing is I am going to have to explain this to the VAT Inspectors next week and to say I pooping myself is an understatement!! I cant sleep and constantly feel sick! They havnt even discussed the findings of VAT inspection yet so worried if there are any other mistakes!


(The mistake happened on my first ever VAT quarter and had only just started using sage a couple of months before (2007) Unfortunately for me I don't think that stupidity is a reasonable excuse! I know we have to pay it back, and so we should but what about interest and penalties??


Anyone else ever screwed up this bad???

 

[OldWelshGuy]

relax, my guess is that they will be fine about it (as long as all the rest was cool). Mistakes happen, fraud is regular, if they have found 1 single instance, then they are unlikely to go mad. CERTAINLY not charge anyone with anything.

tell them what happened, they will deal with it.

 

[KM-Tiger]

No need to lose sleep, the rules are that mistakes under £10K can simply be corrected on the next return. No need to report, no penalties, no fines.

Surprised that the software allows such a mistake. I use TAS which would ask me to confirm if I wanted to do such a crazy thing.

 

[S-Marketing]

Wilson, its not as bad as you think.

Certainly not worth losing sleep over. If its a genuine mistake they will know. They deal with enough less than honest people, to be able to spot a mistake.

As you pointed out, all employees of HMRC dont breath fire. I've always found them to be very helpful.

I would put money on it, that when they come back, you have a bit of a chat about it, and then its all sorted.

Calm down mate.

 

[Wilson2009]

relax, my guess is that they will be fine about it (as long as all the rest was cool). Mistakes happen, fraud is regular, if they have found 1 single instance, then they are unlikely to go mad. CERTAINLY not charge anyone with anything.

tell them what happened, they will deal with it.

Thanks for replies, my husband keeps telling me not to get so worked up about it but he know Im a worrier and cant stop dwelling on it!

You said as long as they dont find anything else??? you mean ANY mistakes or mistakes as big as this one?

 

[Tom Egerton]

May I suggest that before you submit VAT returns you do a couple of simple calculations. The VAT output tax figure will frequently be 17.5% of the outputs subject to you not having any zero rated supplies. If you have zero rated supplies it will be less than 17.5% (but never more). Likewise if you divide your VAT input tax claimed by the inputs you should almost always arrive at a figure less than 17.5% because some of your inputs will be zero rated or exempt.

I suspect that this was the reason you had the visit i.e. the input tax for the quarter was more than 17.5% of the inputs.

 

[David Griffiths]

No need to lose sleep, the rules are that mistakes under £10K can simply be corrected on the next return. No need to report, no penalties, no fines.

.

That's not actually correct under the new penalty regime. Mere correction of the error without reporting can still lead to a penalty for carelessness if it is not specifically disclosed. It remains legitimate to amend it on the later return but if you want to escape the full rate of penalty disclosure is still required.

 

[KM-Tiger]

That's not actually correct under the new penalty regime. Mere correction of the error without reporting can still lead to a penalty for carelessness if it is not specifically disclosed. It remains legitimate to amend it on the later return but if you want to escape the full rate of penalty disclosure is still required.

Thanks for that clarification.

 

[OldWelshGuy]

Wilson, its not as bad as you think.

Certainly not worth losing sleep over. If its a genuine mistake they will know. They deal with enough less than honest people, to be able to spot a mistake.

As you pointed out, all employees of HMRC dont breath fire. I've always found them to be very helpful.

I would put money on it, that when they come back, you have a bit of a chat about it, and then its all sorted.

Calm down mate.

Not a politician are you stretch That made me smile

 

[S-Marketing]

Not a politician are you stretch That made me smile

I'm diplomatic by nature. I spend all day telling clients that their current marketing strategies are 'lacking direction' or 'require a more targeted approach'.

 

[GGGSurrey]

I agree with the other posters that it's nothing to get stressed with - lucky you've an understanding boss.

There's a lesson that we should learn that it's important to not just crunch the numbers but to read the results too. If preparing a set of accounts (or reading those prepared by your accountant) it makes sense to read them. Read through and say, "we sold £x, that sounds right, we've £y in stock, yes that sounds right" etc. etc. And if you read that you spent more on NI than on salaries for example then you'll know to go and recheck.

 

[Tom Egerton]

As David Griffiths has said there may be interest and penalties attached to the underpayment because this will be a "disclosure under challenge" i.e. HMRC have effectively found the error - a lot different to you finding it and adjusting before the compliance visit. I suspect they'll add something like 30% but as GGG has said you must look at the return before sending it off.

 

[Wilson2009]

Thanks for your replies. As I said It was my first VAT return (2007) and only started using sage two months before. Not a reasonable excuse that along with stupidity is the only excuses I have. :redface:

I do check the returns, Im not an account or a bookkeeper but I can usually spot if something doesnt look right but I guess that comes with a couple of yeats using sage now.

It really has spooked me, Im still worried & still feel sick, Im just wanting next week to hurry up so I can get it over with. Has anyone else made a balls up this big or is ot just me :redface:

 

[David Griffiths]

As David Griffiths has said there may be interest and penalties attached to the underpayment because this will be a "disclosure under challenge" i.e. HMRC have effectively found the error - a lot different to you finding it and adjusting before the compliance visit. I suspect they'll add something like 30% but as GGG has said you must look at the return before sending it off.

There can still be penalties even if you find and adjust before the compliance visit if you don't make specific disclosure of the error

 

[taxattack]

Thanks for your replies. As I said It was my first VAT return (2007) and only started using sage two months before. Not a reasonable excuse that along with stupidity is the only excuses I have. :redface:

I do check the returns, Im not an account or a bookkeeper but I can usually spot if something doesnt look right but I guess that comes with a couple of yeats using sage now.

It really has spooked me, Im still worried & still feel sick, Im just wanting next week to hurry up so I can get it over with. Has anyone else made a balls up this big or is ot just me :redface:

For a 2007 return the "old" penalty regime will apply. Assuming it's accepted as an innocent error, and is an isolated incident, penalties (as opposed to interest) will only apply if the understated vat is more than 30% of the "gross amount" of tax, ie the input + the output tax on the return, ie £18,000 ((6000-60)/.3) in this case. The penalty would be a maximum of 15% of the understated tax, subject to mitigation for co-operation, general compliance history etc.

Suggest you draw up some rules/procedures for checking future returns prior to submission (as suggested by Tom), which you can show them when they return.

Easy for me to say, but not something to worry about too much.

Edit - should it have been £70 (17.5%)?

Chris

 

[Jaydee]

Aside from the inspection implications of the VAT error, how did it go unnoticed for three years?

If you entered a £400+£60=£460 invoice onto your accounts package as £400+£6000=£6,400, did you overpay the supplier too to clear the balance?

If you prepared the VAT return manually so that the accounts system was correct but you left off the decimal point when preparing the workings, how has VAT control reconciled at each subsequent year-end?

 

[Wilson2009]

Hello
Just thought I would update on VAT Inspection. Its all over and done with now Its such a relief, sleepless nights are hopefully behind me now!

As in my previous post I made big error on vat return (they found it,, not me) I then went through vat return after they had gone and found couple more mistakes, not massive amount but still. Anyway they came back today and I confirmed that I had overclaimed vat back. They were fine and thanked me for being so thorough and helping them and for saying that I had found more mistakes. That was the only vat quarter with any probs so although I did screw up big at least all others passed

On their first visit they also took a couple of invoices away to check etc but they were fine, also on first visit they took a copy of my sage back up and loaded it on to their laptop and thats how they found my big mistake. Good job really as if this had been left and we have another inspection a few years down the line the interest would be alarming!!

Anyway just wanted to update and say thanks for replies to my first post

 

[OldWelshGuy]

I am happy for you