I have been passed a client who has been trading since January 2012, is registered as self employed but has not submitted any SA (penalties are piling up as we speak).
The SA I can sort out no problem, my query is that he reached his VAT threshold of 77k for year 12/13 in January 2013 but has not registered. I have not come across anyone/business who is this far behind on their accounts before. The fact that he has not registered for VAT is not a total surprise either in light of SA !!
I am currently waiting for the 64/8 form to go through the system, as he is reluctant to ring HMRC and explain himself. In the meantime, before I can make calls on his behalf, what is the best way forward ?
The date he went over his limit was 11.01.13 - would this be the date that he registers from ?
If went over £77k threshold on 11/01/13 then due to be registered and charging VAT from 01/03/13.
Would he be able to go back to customers invoiced from 01/03/13 and reissue the invoices with VAT on top? If not then will be treated that the invoiced amount already includes VAT so will need to pay a 1/6 of the income since 01/03/13 to HMRC for VAT.
There is likely to be a late notification penalty plus penalties/interest for failing to submit and pay VAT on time.
Easiest thing is to get him registered and then get the VAT returns up to date.
At the end of the day it is his problem and all you can do is try to help him out.
Would he be able to go back to customers invoiced from 01/03/13 and reissue the invoices with VAT on top? If not then will be treated that the invoiced amount already includes VAT so will need to pay a 1/6 of the income since 01/03/13 to HMRC for VAT.
Is that correct Mark? My understanding is that he will have to pay VAT on top of the invoiced amount. He will also be able to offset any VAT purchases, as well as making a claim for any pre registration VAT
I have been passed a client who has been trading since January 2012, is registered as self employed but has not submitted any SA (penalties are piling up as we speak).
The SA I can sort out no problem, my query is that he reached his VAT threshold of 77k for year 12/13 in January 2013 but has not registered. I have not come across anyone/business who is this far behind on their accounts before. The fact that he has not registered for VAT is not a total surprise either in light of SA !!
I am currently waiting for the 64/8 form to go through the system, as he is reluctant to ring HMRC and explain himself. In the meantime, before I can make calls on his behalf, what is the best way forward ?
The date he went over his limit was 11.01.13 - would this be the date that he registers from ?
Any pointers would be greatly appreciated
Register now for VAT in the normal way and put January 13 down as the date he went over. HMRC will then tell you the date of VAT registration, which as Mark says should be 1st March 2013. HMRC will send a letter out wanting to know why registration was late and from the reply will determine whether any penalties are due. In your clients case I would have said it's likely, given the lengthy delay in registering.
My client runs a carpet shop, so going back and adding VAT to sales invoices will not be possible.
I will as you both advised register ASAP and prepare him for another series of late penalties and fines ! Currently going through his purchases to see how much can be offset against his VAT.
Would he be able to go back to customers invoiced from 01/03/13 and reissue the invoices with VAT on top? If not then will be treated that the invoiced amount already includes VAT so will need to pay a 1/6 of the income since 01/03/13 to HMRC for VAT.
Is that correct Mark? My understanding is that he will have to pay VAT on top of the invoiced amount. He will also be able to offset any VAT purchases, as well as making a claim for any pre registration VAT
HMRC sight says you 'should' increase charges to cover the the VAT whilst waiting for the confirmation of registration, as opposed to 'can', although I did think it was a business decision that you could absorb the VAT into the overall pricing, so keen to know the answer to this one myself!
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
For sales already made, where he cannot go back to customers to collect the VAT, he will have to pay VAT inclusive of the amounts charged, ie: 1/6th of the sales income. He does not have to account for VAT on top of the amounts charged.
On the penalty point, budget for a 30% penalty, and argue it down to 10-15% if you can.
Would he be able to go back to customers invoiced from 01/03/13 and reissue the invoices with VAT on top? If not then will be treated that the invoiced amount already includes VAT so will need to pay a 1/6 of the income since 01/03/13 to HMRC for VAT.
Is that correct Mark? My understanding is that he will have to pay VAT on top of the invoiced amount. He will also be able to offset any VAT purchases, as well as making a claim for any pre registration VAT
HMRC sight says you 'should' increase charges to cover the the VAT whilst waiting for the confirmation of registration, as opposed to 'can', although I did think it was a business decision that you could absorb the VAT into the overall pricing, so keen to know the answer to this one myself!
Hi Jo. Once you've realised that you should have been charging VAT then you're right, Your invoice should be increased by 20% to cover the VAT element. Once your vat number comes through you should re-invoice the same amount but showing the VAT. However I was wrong regarding what happens prior to that as I believed the VAT had to be added on top of your taxable sales.
For sales already made, where he cannot go back to customers to collect the VAT, he will have to pay VAT inclusive of the amounts charged, ie: 1/6th of the sales income. He does not have to account for VAT on top of the amounts charged.
Thanks Les. (and apologies to Mark but I'm glad I queried it) You can still offset VAT on purchases and do a pre reg VAT claim I presume? (Doubting myself now lol)
For sales already made, where he cannot go back to customers to collect the VAT, he will have to pay VAT inclusive of the amounts charged, ie: 1/6th of the sales income. He does not have to account for VAT on top of the amounts charged.
On the penalty point, budget for a 30% penalty, and argue it down to 10-15% if you can.
Thanks Les. A question for you - HMRC state add 20% extra on prices then re-invoice. Do you know if you can re-issue the invoice with same date and reference number but now showing split of VAT and VAT number. Or technically do you need to credit note and issue a brand new invoice?
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Hi Jo. Once you've realised that you should have been charging VAT then you're right, Your invoice should be increased by 20% to cover the VAT element. Once your vat number comes through you should re-invoice the same amount but showing the VAT. However I was wrong regarding what happens prior to that as I believed the VAT had to be added on top of your taxable sales.
Hi John/Les
All I can say is phew!!! Cos got one that increased their invoices by 20% once they knew they had VAT registration, although at the point HMRC confirmed registration they didnt give them their VAT certificate (they didnt register online, heaven knows why - Accountants advice!) BUT when they finally got the certificate in the post they found out that HMRC backdated the registration about 15 days before they asked/knew about it.
So I said that the VAT is also due on the backdated invoices - that they could try to get the customers to agree 20% extra on top, but as a commercial decision to not annoy their customers perhaps they should just absorb it. They have gone and agreed increase with a chunk of their clients - for these they have issued credit note and re-invoiced, others wouldnt accept it so its just a margin hit with the VAT to pay.
Just got an issue now with one client who was given the extra 20% price increased type invoices (the 20% was stated on the invoice as an 'admin fee' - they are insisting on credit notes and new invoices, rather than revised invoices showing the VAT where the admin fee was/VAT number. Just wondered technically if we need to do that!!!!!
-- Edited by Cheshire on Thursday 19th of February 2015 12:09:35 PM
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Just got an issue now with one client who was given the extra 20% price increased type invoices (the 20% was stated on the invoice as an 'admin fee' - they are insisting on credit notes and new invoices, rather than revised invoices showing the VAT where the admin fee was/VAT number. Just wondered technically if we need to do that!!!!!
-- Edited by Cheshire on Thursday 19th of February 2015 12:09:35 PM
If the previous invoice was for £120 the revised invoice should show £100 + VAT, not £100 + £20 admin fee. I suppose technically it doesn't make a difference providing the VAT number was shown, but your client is quite within their rights to ask for an invoice showing the VAT.
Wow, never thought VAT could be so complex ! I will let you all know what happens once my client has recovered from the shock and I have the definitive answer from the Gods that be - HMRC !!!
You can re-invoice, using the same invoice number, but do enclose a covering note so the recipient knows what to do; do they need to pay some more money or not?
HMRC Officers have never been in business, so don't understand that it is not possible to increase the price of a completed sale by 20%. It is also probably illegal under contract law, since the price for the goods./services was agreed at the time.
Just got an issue now with one client who was given the extra 20% price increased type invoices (the 20% was stated on the invoice as an 'admin fee' - they are insisting on credit notes and new invoices, rather than revised invoices showing the VAT where the admin fee was/VAT number. Just wondered technically if we need to do that!!!!!
-- Edited by Cheshire on Thursday 19th of February 2015 12:09:35 PM
If the previous invoice was for £120 the revised invoice should show £100 + VAT, not £100 + £20 admin fee. I suppose technically it doesn't make a difference providing the VAT number was shown, but your client is quite within their rights to ask for an invoice showing the VAT.
My client has issued the VAT invoice, same invoice number as before, just changed the 20% admin fee to VAT and quoted the VAT number. They are just playing silly buggers!
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
You can re-invoice, using the same invoice number, but do enclose a covering note so the recipient knows what to do; do they need to pay some more money or not?
HMRC Officers have never been in business, so don't understand that it is not possible to increase the price of a completed sale by 20%. It is also probably illegal under contract law, since the price for the goods./services was agreed at the time.
Hi Les
My thoughts exactly about the cavalier approach of oh well just increase your prices!! But fortunately my client got away with that bit. Then once they had the VAT registration they updated all the already issued invoices with a VAT invoice, same invoice number as before, just changed the 20% admin fee to VAT and quoted the VAT number. Unfortunately just ONE of their clients is playing silly buggers and frankly using it to get extended terms. They agreed to them doing it over the phone - I spent ages re-doing a huge pile of the blitherin things and now theyve changed their minds and want credit notes and re-invoicing. Ive just directed them to HMRC and said - tell me where it says I need to issue credit notes and I will do it! Followed by 'pay up or else' - although I was more diplomatic than that, but might send in the heavy mob tomorrow.
Thanks for your help, as ever!
__________________
Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Just got an issue now with one client who was given the extra 20% price increased type invoices (the 20% was stated on the invoice as an 'admin fee' - they are insisting on credit notes and new invoices, rather than revised invoices showing the VAT where the admin fee was/VAT number. Just wondered technically if we need to do that!!!!!
-- Edited by Cheshire on Thursday 19th of February 2015 12:09:35 PM
If the previous invoice was for £120 the revised invoice should show £100 + VAT, not £100 + £20 admin fee. I suppose technically it doesn't make a difference providing the VAT number was shown, but your client is quite within their rights to ask for an invoice showing the VAT.
My client has issued the VAT invoice, same invoice number as before, just changed the 20% admin fee to VAT and quoted the VAT number. They are just playing silly buggers!
Ah sorry Jo, I completely misunderstood you. I thought it was your client who had received a re-issued invoice that showed admin instead of VAT. Doh! Yep I don't see a problem. This bit deleted but if you saw it realised it would be too much hassle to you as there were a lot.
-- Edited by 111 Bookkeeping and Payroll on Friday 20th of February 2015 10:46:21 AM
