15 Nov Don’t let your VAT return become a horror this Halloween
Does the idea of a VAT inspection make you shudder?
You’re not alone.
Most VAT-registered business people dread the receipt of a letter saying their business is to be inspected.
Yet, it’s a routine thing. Accountants expect a company to be VAT-inspected within three years of registration, then every four to six years.
It doesn’t have to be an awful experience. Generally, the horror stories happen when self-employed people and businesses fail to get the basics right.
The case of the frightening figure.
Lesson: Failing to disclose a change of any sort could hit you in the pocket.
In 2013, one sole trader incorporated a company but forgot to tell HMRC. They paid the correct amount of tax, but did it under the sole trader’s tax number. HMRC, however, imposed a £5,000 penalty for a failure to disclose the incorporation within 30 days. The case was among a number of similar appeals which then had to go to VAT tribunal.
Failure to notify a change of any details including a change of registered address could end up with a penalty.
The case of the petrifying penalty.
Lesson: Failing to inform HRMC there’s a problem immediately can be hugely costly.
A company used agents to issue invoices and a separate agent to fill in VAT returns. There was a miscommunication between agents – VAT was charged to customers but wasn’t included in all cases across three VAT returns. HMRC contacted the company to arrange a visit, then the company informed HMRC it had picked up a problem between the VAT returns and their bank statements. Because HMRC had already arranged a visit, the company was penalised by £105,000 – and the VAT tribunal upheld the penalty.
The case of the over-charged café.
Lesson: Failure to read letters from HMRC could be a big mistake.
The owner of a small café was shocked to receive a VAT bill for almost £980 million from HMRC – yes, you read that correctly! The figure on the letter was almost £980 million.
Thankfully, the owner read the letter and challenged it immediately. The figure had been caused by a computer error. If the owner had ignored the letter, they could have faced bailiffs at their premises seeking payment.
HMRC reduced the bill to under £17,000.
The case of the dastardly deregistration
Lesson: Tell your VAT advisers and accountant if you are deregistering and plan to sell a property.
One company found themselves facing a VAT bill of more than £100,000 because they sold a company property while deregistering for VAT.
The owners hadn’t realised that it fell under VAT taxable assets. If you’re thinking about deregistering, get professional advice on your liabilities.
The best way to avoid penalty payments is to ensure your VAT accounts are updated on a monthly basis, and you have the advice of an agent who is registered with HMRC.
I’m used to dealing with HMRC, it’s deadlines and submissions.
I’m a registered VAT agent for businesses in Cardiff, Newport, and South Wales – and if you’ve ever met me, you’ll know I’m one of the few people who love VAT!