Hi Callie
First thing - try to get a copy of the letter. Second thing - with or without the letter phone your governing body. Third - MUST DO - ring your PII providers and tell them (failure to do so at the time you heard of a potential issue could just mean a whole load of bother in the future if there is a claim).

You dont state what kind of business he is in, but they may be checking him out due to them concentrating on a specific sector or just because its a cash based business. Or maybe something in his tax return, but I suspect that it is most likely to be the fallout from a tax investigation conducted on one of his clients or suppliers - thats quite common. Or it could be just a random check. Lots of reasons really!

So if he is now admitting that he knew he hit the threshold and did nothing then he has a problem. First and foremost it is his responsibility to have registered, but this does not mean it absolves a Bookkeeper or Accountant of their duty of care. There are certainly a few things you can be doing now to get ahead of the game in time for the inspection.

When did you start doing his books (as a friend or as a licensed bookkeeper)? Did you have access to the full 12 months figures from before then? Regardless of whether he has had reduced turnover since, the numbers should be reviewed on a regular basis to check that a breach of the VAT registration is not likely to occur, on the basis of either a big contract that might take it over for a short length of time, or on a rolling twelve month basis (rather than annual basis).

So - can you go back that far in your records and check? Check the 12month rolling basis calculation. If your records do not show he has breached the figure I would have a word with him as to why he thinks he has. It may well be that he has not declared all his income to you but obviously then you could not have a crystal ball, unless of course it there were obvious other signs that you did not pick up on (and this is where dealing with friends can be akward as one doesnt want to have the difficult conversations with them).

Either way I would advise him to speak to his Accountant straight away. If you have the authority to speak to the Accountant I would be having a chat with him as well. You need to decide between the three of you a plan of action and exactly who will attend the meeting.

I could say dont worry, but I know even if I do that you most likely will. Its human nature, but depending on his track record with the revenue and the way its handled, doesnt mean its necessarily a really bad outcome. If he has breached the registration threshold and it can be shown that it was a short term issue then admittance before the inspection itself would probably be a wise move. Fines and penalties may be incurred, although showing his record keeping processes etc have been improved may well keep that down to a minimum - thats why he needs to get the Accountant on board and now.