I have just been doing a clients end of year accounts and his turnover has exceeded the VAT registration threshold and I just wanted to clarify a few things before I tell him the good news.
Am I right in thinking that he should have registered within 30 days of going over the threshold which was the end of March and that he should of been charging VAT from that date which he obviously has not.
Is he now liable to pay 20% VAT on all his sales from the end of March and that he could also incur a penalty?
Not sure as yet why his turnover has rose so much this year but if it was just for this year would it be worth applying for a registration exception and if so what sort of evidence would HMRC require and if this was not successful would it only prolong the case and delay registration.
Any help and advice on this would be greatly appreciated
Cheers
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
Morning Doug
I am sure I dont need to tell you that this should be looked at on a historic 12 month rolling rather than Accounting period basis (but have added that for other readers)
With that in mind if at the end of any month in that period then they must register by notifiying HMRC within 30days of the end of that said month so that the business would then be registered from the first day of the following month. So in your case if the rolling 12months took him over at 31 March then he shouldve notified by 30 April and registered 1 May.
Failure to notify then penalties may be applied based on the type of error rules - deliberate/concealed/careless - prompted/unprompted scale. The minimum can be 0%.
That said the penalty is based on the potential lost revenue to HMRC - so if they register and pay then there is no lost revenue but you may have to argue that.
No he wouldnt pay 20% VAT on his sales, assuming he cannot go back and increase his prices via his customer base (unlikely in this scenario) - its the usual 1/6th calculation for VAT inclusive, plus dont forget the adjustment for input tax per the usual rules pre registration.
My understanding is that you can only claim exception within that 30 day period, but I stand to be corrected on that one.
Dont forget to de-register if he is back within and likely to stay that way for a good while.
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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
No he wouldnt pay 20% VAT on his sales, assuming he cannot go back and increase his prices via his customer base (unlikely in this scenario)
Hi Joanne
Thanks for that
He is gonna wish that he could go back and increase his prices after the phone call he is gonna get from me on Monday, but its his own fault I have told all my clients that I only do year ends for to make sure they check their turnover regular, but they never listen!
Cheers
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
No he wouldnt pay 20% VAT on his sales, assuming he cannot go back and increase his prices via his customer base (unlikely in this scenario) - its the usual 1/6th calculation for VAT inclusive, plus dont forget the adjustment for input tax per the usual rules pre registration.
I had a client go over VAT threshold a few years ago which wasn't picked up until 4 months later when doing the accounts. At first I though uh uh, that's going to cost him 20% of his turnover, then fortunately realised it's a 6th of his sales, so a slight saving. Fortunately he carried a lot of stock and a 5.5k van so after doing pre reg was able to nullify the VAT for the missing period.
My understanding is that you can only claim exception within that 30 day period, but I stand to be corrected on that one.
Not sure what you mean by this (me being thick like )
Hi Doug
It would be worth asking him some questions as to why he's gone over. Is it a temporary blip or is he likely to stay over the threshold. Based on my recent dealings with HMRC, my impression is they want the rolling month to be back under the deregistration threshold within a year of the registration date, and the sooner that occurs increases the likelihood of them allowing it.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
As far as I understand it from a tribunal decision, is that the exception should be applied for on the basis of their forecasted turnover viewed around that time when they should have registered, ie April (as in dropping back and then not expected to exceed the de-reg limit as you mention) and not using facts with the benefit of hindsight (ie now viewed as of now).
HTH
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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
Thanks for the replies, had a betters look through the accounts and their are 2 months (last July and March) when his turnover has risen sharply, March was over 25K and because of this will keep him over the threshold for the historic test for months to come.
Need to have a chat with the client tomorrow to find out a bit more information and take it from there, but I know this is going to have an impact on his business as all his work is for Homeowners and not having to charge VAT allows him to be more competitive when pricing jobs.
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Doug
These are only my opinions of how I see things and therefore should not be taken as advice
As far as I understand it from a tribunal decision, is that the exception should be applied for on the basis of their forecasted turnover viewed around that time when they should have registered, ie April (as in dropping back and then not expected to exceed the de-reg limit as you mention) and not using facts with the benefit of hindsight (ie now viewed as of now).
HTH
Thanks Joanne. Looks like my guy was lucky then. We didn't apply for exception until February (when I discovered he'd gone over) and he'd gone over the threshold in October. They turned the exception down, but not until after looking at it and deciding he wouldn't be under the threshold in October 2017.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
No he wouldnt pay 20% VAT on his sales, assuming he cannot go back and increase his prices via his customer base (unlikely in this scenario) - its the usual 1/6th calculation for VAT inclusive
I've not found this to be the case :( assume it's one of those things where it depends what officer looks at it, but I had an awful one once where they refused to accept the income as inclusive of VAT and applied a backdated assessment as if what they'd received was net, adding 20% on top (which the client could never recover).
-- Edited by fin6y on Wednesday 26th of July 2017 04:24:43 PM
It was appealed, they refused to change it (I think on the grounds of something ridiculous like this would be "bodging" the figures in order to just be assessed a lower amount), and the company went under anyway shortly after due to a number of other debts it had on top of this one. It would have gone the same way even if they'd treated it as inclusive honestly so their decision wasn't pursued any further, but just thought it was worth a mention because I'd previously thought the same as Joanne.
I wonder what the outcome of the next step up would have been... totally agree Vince, that was our argument that they basically were telling us the client had received more than they actually had. Madness.
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