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Back Dating VAT Registration

Hi All,

I took on a new client a week before the SA deadline. I got everything in order and filed on time (partnership return and 2 x SA's for both partners). However on completion of the accounts it appears the VAT threshold was exceeded in April 2011 and the turnover is well in excess of the registration threshold thereafter.

I've checked the previous two years, and although there was the odd month which exceeded the threshold, this was the first time it was exceeded on a regular basis.

I have dealt with these before and are normally pretty simple. I've spoken with the customers of the partnership, they are all VAT registered and do not have a problem paying the VAT that should have been charged. I've prepared the registration forms for HMRC and we appear ready to go.

The part where any other experience would help....

The previous accountant was clearly incompetant. I would never normally make an assumption based on one client but this one really has no excuses.There are many issues relwith penalties and incorrect advice we are dealing with. The accountant (on the phone, not in writing) said that as the client was a service provider they were exempt from VAT registration - this is not the case. The client eventually got so concerned he attempted his own VAT registration which HMRC rejected (clear errors on the form) then they eventually approached us.  

Will HMRC accept that their advice was fundementally incorrect and they did attempt VAT registration as a reason to avoid penalties? The registration is something we are doing, without HMRC demanding it (although they will be aware through the Partnership and CIS returns).

The ones I've dealt with before have had penalties, but they had no excuse for failing to register. In this case, I can understand some interest but the client didn't have any idea, and has taken actions to try to resolve the situation.

Any help or experience will be much appreciated, thanks!


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At what point ...

... in the process did the client attempt to register? That is unlikely to avoid penalties but should certainly help in mitigating them. I would also think about arguing that the penalties should be based on the 'lost' revenue up until the point that registration was attempted, and not beyond. I'm speaking without any practical experience in that, and am not sure if the arument would hold water - if registration was refused because the client got it wrong they may well still be exposed. Hopefully the VAT Doctor, or someone else, with more knowledge of case law etc can assist.

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I'm sorry but what's this bit about...


I've checked the previous two years, and although there was the odd month which exceeded the threshold, this was the first time it was exceeded on a regular basis.

So had they exceeded the threshold or not in the previous 2 years?, and what are you treating as the threshold do you mean 1/12 of the turnover limit or do you mean on the proper 12 month rolling basis.

From the HMRC point of view 'only exceeding the threshold in the odd month' is a bit like being a 'little bit pregnant' either you've been in excess of the threshold and have a liability to register or you don't, so the first of these odd months would be when the liability to register crystallises.

I'm also not sure with the bit that says "will HMRC accept that their advice was fundamentally incorrect", do you mean will HMRC accept that the previous accountant misadvised the client (yes they probably will; but they won't care - reliance on a third party is not a reasonable excuse), or do you mean will HMRC accept that HMRC were wrong in not allowing the prior registration attempt (if you do then it would probably depend the types of errors on the form)?

Also as BKD says how soon after HMRC refused the application is this new one going in?

Just out of interest what do the party do, is there any possibility of being able to argue that the liabilities were unclear and so they might have the excuse that it wasn't obvious they were making taxable supplies?

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Thanks for the responses. The new form is going in three months after the initial refusal.

The errors on the forms were basic mistakes by the client - not HMRC errors and were made by his lack of understanding.

With the VAT threshold, they exceeded on 1/12 of the threshold, but not on the rolling 12 month basis until April 11.

The client is a construction engineer and fall under CIS. In "normal" conditions he is no where near the threshold, but over the last couple of years he has been doing considerable work abroad and negociated with clients to pay an additional daily charge to cover hotels, car hire etc. These charges are a flat rate and not relative to his actual costs. The clients are UK based companies.  

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I need to be careful with my words here, because there is still not a lot of info. Looking back at your posting history you seem to make a habit of questioning the competence of other accountants, but have you fully considered the importance of the 2 words above?

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Place of supply

OK, I'll try to be helpful to you!

If your clients turnover consists to any extent of land related services in another country, these supplies would NOT count towards the VAT threshold in the UK.

This is a fundamental point and I would advise you look at this.  Only taxable turnover (in the UK) is taken into account. When you know what the taxable supplies are, do a rolling turnover calculation over the past few years to see if the threshold has been exceeded.  If not, you do not need to disclose anything to HMRC.

I hope this helps.


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To add to TVD's point

Whilst your client may be able to breathe a sigh of relief as far as UK registration is concerned, he may yet find himself in default in those overseas countries.

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To add to BKD's point

Some EU countries (the UK for example) extends the general rule for B2B supplies to land related supplies, allowing a local VAT registered contractor to declare the VAT instead of the supplier registering.

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Can you clarify, please, TVD

Assuming that the client's services are to that local VAT-registered contractor, would the R/C not apply in any case? (Assuming, as in the UK, R/C is operated). I had other scenarios in mind when thinking there may be an overseas registration issue.

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The Reverse Charge (RC) is NOT universally extended to land related supplies in all countries. 

Looking at this specific example, the charge is to a UK company, but related (we infer from the response) to land outside the UK.  Because the UK company is not buying in services from outside the UK (assuming of course the client has no establishment etc in those other countries), I can't see how they would apply a RC.  But I can't see either that UK VAT should apply either, as the land is outside the UK.

I suppose, in that case, the client may HAVE to register in the other country because there is no-one else there to apply a RC.

My general point earlier was that, where you are charging an overseas contractor related to overseas land related services, they MAY be able to apply the RC.

Towel round the head time!

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Thanks, TVD

That matches my thinking.


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Further info

Thanks everyone.

My concern is, although he is working abroad, they are all for UK based VAT registered companies. He falls under CIS but works as a specialist consultant and isn't "on the tools" so to speak.  CIS has been deducted on every invoice he has raised during the period.

He works for three companies mainly, and take a contract period with them of for instance three weeks. In that three weeks he could travel to a number of different sites accross different countries.

Would this change the thoughts above?



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As TVD said ...

... the location/registration status of the clients may be irrelevant. If the supplies are land-related (please look this up, as suggested) then the o/seas work will be outside the scope of UK VAT. If the nature of his work is such that CIS tax needs to be deducted, I would suggest that it is almost certain that his supplies will be land-related.

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