My client has received a letter from the revenue regarding VAT initiative campaign. What has happened is that the clients previous accountant submitted the tax return for the years 2009 and 2010 with the turnover exceeding the vat threshold but clearly did not register for vat. The clients turnover has reduced this year and the year before. In these years the turnover did not exceed the threshold. In the letter the revenue want a overview of how he operates as a business and how he invoices.
I'm just a little worried and would like some advice on how to tackle this. Has anyone experienced a similar situation to this? What's the worst that can happen?
Appreciate any feedback.
-- Edited by BennyT on Sunday 10th of March 2013 10:04:11 PM
The real danger is that, if the taxpayer did exceed the VAT registration threshold, there was an obligation to notify HMRC, even if the turnover subsequently dropped. This will lead to assessment and penalty action. The first task is to determine the actual sales, and whether of not the previous tax returns were correct or not. You have two basic alternatives; agree that the taxpayer should have notified HMRC, and provide such background data to accurately determine the sales (ideally on a monthly basis), as well as output tax and input tax; OR; argue that the turnover was expected to drop (and you will need to provide relevant evidence for this). Either way, respond to HMRC within a reasonable timescale, and with respect.
