His dad died a few weeks ago who owned a vat registered company. I was told the 'probate' has not gone through yet (I'm not even sure what this is) some work has been done since his death and his son needs to invoice the client to get the money to pay the workers. He changed the bank details on the invoice to his own as he cannot access his dad's bank at the moment.
The client has been send an invoice today with the sons bank details the clieny has will not accept the invoice with vat on as the son is not vat registered. anybody know what he can do about this? He's in a bit of a hurry to pay the workers.
Sorry to sound harsh Rachel and I know that this is a freind rather than a client as such but the son should be talking to an accountant.
From the sound of it the business is an unincorporated VAT registered business that had no succession planning in place.
This is too complex a scenario to be giving casual advice about so as I say, your friend needs to contact the accountant who loked after the business to talk matters through in detail with them.
You may find that the answer is that the business goes into temporary administration until the succession is sorted out.
The downside there is that many businesses wrongly assume that a business being in administration is a sign of a business being in trouble and that often ends up a self fulfilling prophecy.
As I say though, this is really chartered / chartered certified accountant territory and you need to advise your freind to talk to the businesses accountant immediately to try and get the issues resolved.
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
You say it is a company, in which case the company is a separate legal entity from the dad and the son and presumably the work had already been contracted. I would think (but as Shaun says, you should get proper advice) that the company would send the invoice out with vat, irrespective of the son not being vat registered. Whether the client will pay into a different account is probably up to the client and without probate it is unlikely the account will be accessed unless there is another signatory on the account? Maybe a different director or Company Secretary, perhaps even a word with the bank may shed some light. However Shaun seems to be reading between the lines and suggests maybe it is an unincorporated business and the term 'company' has been used loosely and this kind of fits in with the rest of the question? I suppose either way the employees have an issue either with the company or the dad's estate.
I was going off the line about it being the Dads rather than the companies bank account which to me sounded as though the mistake was in using the word company and this is an unincorporated business.
As you suggest, I could be mistaken and the answer is different for an incorporated business.
Like yourself I've also noticed a tendency for the word company to be used loosly in posts.
All the best,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Hi Shaun,
I think you are probably right that it is unincorporated otherwise I doubt the client would be bringing up stuff about the son being non vat registered....I'm sure we will soon find out!
Speaking off-the-cuff ... that is, I haven't been able to check any of my facts ... I believe the situation is something like this.
If the business is unincorporated, then, legally, it came to an end upon the Dad's death. The liabilities will have to be settled by the executors and the remaining assets will be distributed according to the terms of the will, once probate has been granted. If it is a limited company, then it survives the Dad's death, and the remaining shareholders have the power (and responsibility) for its continued operations. If Dad was the only shareholder then the executors will be responsible for the Company until the shares are distributed.
In the meantime it would be wise for the shareholders/executors to speak to the bank to see if they will allow an advance to be made in respect of wages, to be repaid out of the estate. I believe banks become a preferential creditor in respect of loans for wages, so they should be receptive, especially if they want to continue to be bankers to the [successor] business after everything has been sorted out.
It is not necessary for probate to have been granted before the executors can start to administer the estate and receive payments for the estate, but they will not be able to dispose of any of its assets without it. All that is necessary is for them to have been named in the will and to have consented to act. (The bank will probably want sight of the original will.)
If the business is incorporated, then, as Rob says, it is perfectly able to issue a proper VAT invoice that the debtor must honour; it just needs someone with the authority to issue it and shareholders can do that.
If it is unincorporated, then the executor will be able to recover amounts due to the estate, including the business's debtors. I am not sure what the VAT implications are, but if he has to account to HMRC for it, and I'm positive he will, then he must be entitled to receive it, either as a normal VAT surcharge on the price, or as an amount equal to the price plus VAT. But here your friend most definitely must speak to an accountant or lawyer (or both) to find out how to deal with it correctly.
Assuming the son has now taken over the Dad's (unincorporated) business, then he has begun a new trade - even if he is using the same business name. Work done by the new business can legitimately be invoiced by the son as he is the contracting party. However, as the son's new business is not VAT registered, it must not charge VAT (and, of course, does not have to account for it to HMRC). The son will also have to account to the executors for monies received on behalf of the estate.
Although, strictly, work done before the Dad died is due to the estate first, if the son is effectively carrying on the old firm as its successor, I imagine debtors will be happy to settle debts by paying the son.
whoa, there's a missleading statement in your second reply in relation to not charging VAT, sorry.
If the business is over the VAT threshold and he does not charge VAT then he would find himself in trouble from that perspective (and just because he does not charge VAT when he should does not means that he does not have to account for it as his turnover would be assumed to be VAT inclusive effectively giving him a 20% drop in income if he didn't charge it!).
The son would need to apply to HMRC to transfer the existing registration to themself.
During the transfer invoices should be increased by the VAT amount on the promise that replacement invoices showing VAT seperately will be issued as soon as transfer is complete.
Can get a bit hairy for clients during this period where they worry about the replacement invoices so as the transfer should happen within 10 days it may be better to hold off invoicing until the VAT number is sorted.
There are other options such as buying the assets and new registration rather than a transfer as a going concern and the business really needs to consider all of its options taking into account all of the facts which of course we are not privy to (and nor should we be).
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Don't apologise for my mistakes, Shaun - I stand corrected, and offer my own apologies to Rachel. I was working on the assumption that the new business would be under the VAT threshold (which was a bit stupid on my part considering the business it was taking over was VAT registered).
You're also right about the availability of other options, hence the need for professional advice.
Thank you very much for your help everyone. I told him I had absolutely no idea!! and that he will need to speak to someone 'proper'. Thanks for your help
RAchel
