Hi Guys and Gals,
I am having problems with a local VAT inspector and as you were all so very helpful last time I put a post up I would really value your feedback.
I have a client who runs a small, family owned Company exporting cars outside EU. We registered the Company and asked for monthly VAT returns from the outset for cash flow purposes. (What an effort that was to get in the first year of trading). The VAT repayments have been in the region of £12-15,000 most months and the Co has just finished its first year of trading. As of this date we have had three requests for verification of VAT Returns during the first fourteen months of trading, all but the last one cleared without any problem. We generally submit the VAT returns for the client online within a few days of the month end i.e July VAT return submitted by 7th August, August Return by 7th September etc. using a goods basis
In July the client actually purchased two batches of cars with a total VAT value of £50,000 but knew that no cars would be purchased in August due to holidays etc. (All cars paid for in July as well) In an attempt to avoid further verification requests on the increased VAT turnover we opted to put the first £25,000 through (goods purchased early July) on the July return and wait until August to submit the remaining £25,000 (Goods purchased late July). Both batches were going to the same agent. Only the first ten of the vehicles were actually exported by the time the July Return was submitted which was our logic for this decision. Client was happy with that.
Client sent this first shipment to his overseas agent, who in turn delivered to his customer and requested payment for same. Unfortunately, the UK supplier left their contact details on the cars (against my client's instructions) and the 3rd party chappie overseas thought he could be clever and made contact with the supplier in the UK in an attempt to do a direct supply at a reduced price. The supplier would not wear this but it obviously caused a significant delay in customer paying the overseas agent which has only just been resolved I think or may even still be the subject of legal proceedings. Neither my client nor myself were aware of any problems until early September - after the August return had been submitted. This return was submitted following advice from the friendly VAT inspector that we were perfectly within our rights to claim the VAT back on goods held in stock intended for export to non EU country even though it had not left the UK. (I don't really do export in this scale as clients are mostly smaller businesses so was not sure of tax point for claim).
In mid to late September my client advised me that this second batch of vehicles may not actually go due to aforementioned conflict and there may even be a possible cancellation of the order. My client had paid for the cars and up to this stage had fully expected them to go overseas, albeit at a later date. There is still a possibility they may go but, as of yesterday, I discovered it is now less likely. As the cars had not actually left the supplier they agreed to hold them there pending further advice but charged £2,500 in compensation. Nobody arguing about that - overseas agent agreed to pay compensation without hesitation. This was paid in late September. I immediately contacted local HMRC VAT, who had dealt with earlier enquires, to explain the situation (by phone and was stupid enough not to follow up in writing) and suggested they put the account on hold (with client's agreement) until situation resolved. There did not seem to be a problem.
Early October we received yet another supposedly routine verification request for evidence of the August claim, copy invoices etc. (the one I had phoned to suspend) from a different VAT Inspector. I rang him up and quite openly explained the situation as above. He then started talking about charging penalties for submitting a false claim!!!!!!!!!!!! I was so taken aback that I did not really deal with this effectively at the time, simply disputing that suggestion and agreed to provide documents in support of claim. I did this on 14th October by fax but don't have receipt as it was a new machine and was not set up properly. I explained I had contacted them previously to put a hold on repayments as soon as client became aware there could be a problem and he virtually called me a liar and started implying that I might be complicit in making a fraudulent claim! I pointed out that there had been no loss of revenue to them as the money had not actually left their offices (and still hasn't). I also pointed out that the client received payment by cheque from them (Bank details not available on registration and they have failed to update records despite two letters from Directors) and would not have cashed the cheque as he routinely double checked every refund with me before banking same. They clearly did not accept that was at all likely but it is fact. I have never before had any problem with the VAT office and my clients very, vary rarely get a VAT inspection if we do the Returns. Usually only a cursory one on large refunds. I think I have had two VAT inspections in the past 15 years.
Despite all of the above my client apparently received a letter yesterday (which he is dropping off this morning) saying that they have had no contact, from anyone re their initial request and will take further action against client if not submitted by deadline etc, etc. It sounds quite threatening from what he said.
I don't have a problem with the client, he totally accepts that I have done what I have said I have, especially as I gave him feedback every time I did something, but I am really worried (writing this at 4.00am) about how genuine their ability to charge penalties, suggested at being between 15 & 25% of the £25,000ish claimed, is and would really welcome any suggestions as to how to deal with this other than just send more copies of the documents and reiterate my protests before emigrating!
No refund has been given to my client by the supplier to date nor has he received a credit note for the goods as everything was on hold. To all intents and purposes the vehicles are still stock awaiting export and with my limited knowledge of same I cannot see a problem with the claim. Also should I pursue the refund at the moment or not? Client is not too worried about cash flow at the moment as he currently has funds in is account from the same overseas agent (in excess of this VAT amount) for a deposit against other vehicles that have been ordered but will not be available until the new year.
There is one possible complication I have thought of, if they do eventually go, as the supplier is likely to have sold the original vehicles which had obviously been registered in July to secure their own position and may intend replacing them with identical items registered in October/November therefore the export document will ultimately have different details to the existing invoices but I suppose this could be overcome by raising a credit note and new invoice at the point they are shipped which would have zero effect on the VAT position providing they are like for like?
Sorry this is so awfully long but not sure which facts are and are not relevant.