Hi all. One of my clients had a VAT inspection, and he found a couple of sales invoices that had been raised with no VAT on. (Before my time!)
Anyway, he will obviously have to pay the VAT on these. My client has contacted the customers it effects and explained what happened, and they are ok with him raising a VAT only invoice to them to correct it.
However, we have now had the VAT inspectors letter through, and he hasn't calculated the VAT as I'd have expected. EG. If the invoice was originally say £100, with no VAT added, I though we'd have to raise a VAT only invoice for £17.50, taking the £100 as net, as its already declare in last years accounts. The inspector though has calculated it the other way - he's taken the £100 as gross, and said its 7/47 of £100, = £14.89 VAT due. I was not expecting this, and wondered if others thought this was right?
My client just wants to get the VAT invoices raised and all this sorted asap.
Personally, Liz, if you have it in writing from the tax man how to do it, I would do it that way exactly. It might cost your client a bit rather than the customer, but it's worth it to get rid of the problem I would have thought. I imagine it could have been worse if they took the view he was up to something rather than an honest mistake.
I have heard of this before, are you with a professional body?
If you are perhaps give them a call for full advice as the cases I have seen happen 1 of 2 ways:
- It is your clients fault, they raised invoices themselves before using you. Then you might be able to raise an invoice for VAT only, charging your clients £17.50, which they could claim back (if they are VAT registered).
However, if your clients clients are not VAT registered they wont be able to claim this extra invoice back and may not be too happy about it.
- Or if it is a previous bookkeepers fault, your client does as the tax man has suggested and then tries to get the bookkeeper to pay the £14.89 for their mistake.
The customer of my client thats affected is VAT registered, so ok to receive a VAT invoice, as he'll just claim it back. As I say, it just threw me when he took 7/47's of the £100. I am thinking that in that case his accounts for last year will be overstated, as if he does it the VAT mans way, he should have £85 in his declared accounts, not the £100. (We are actually talking larger figures here, I just gave the £100 as an example) It actually equates to about £6k of VAT....
VAT office will see the £100 as being the total sale including VAT, which makes sense. If your client's customer was not VAT registered, it would be unlikely that he'd be able to go back to them for an extra £17.50.
Agree with Nick. If you set your sales price to £100 the VAT man cannot say you should have been selling the product/service for £117.50 so he/you have to take the £100 as the sale including VAT. If you had a customer you sold thing to for let's say £100k and now you turn around and say it was actually £117.5k I am sure they would not be that happy to pay that extra £17.5k, they would just say transaction was completed so there. Anyway you are probably better off with the way HMRC suggest, it is less VAT to pay but you will have to do some sort of adjustments in the accounts, also you will not have the inconvenience of asking customers to pay more...
