I have client that should have been registered for vat from 2003. Can HMRC require the vat to be paid from that date? Are there any ways to reduce the liability?
Many thanks
Replies (12)
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No Limit
1.) Yes
2.) No
Client will be liable for some fairly serious penalties too I would anticipate.
Unfortunately the statute of limitations does not appear to be relevant for VAT.
Penalties
I have seen another case where HMRC were prepared to negotiate the penalties. Your client could be liable to penalties under two different tax criteria but HMRC have been known to waive the penalty element.
Be careful with VAT on management charges if the transaction was over 4 years ago since HMRC may not allow the corresponding input tax. You may be better setting out the various issues and see if HMRC will compromise with regard to some of the VAT arrears.
Malcolm McFarlin
Management charges can be outside the scope of VAT and therefore not counted towards turnover for VAT registration purposes.
The specific circumstances that I have in mind are management charges in respect of common directors of two entities.
Back-dated VAT
HMRC use a concession known as 'liable, not liable.' This means that, if the charity was not registrable for part of the 11 year period, HMRC leave it out of the reckoning for their calculations. This will reduce the VAT liability and any penalty.
If some VAT should have been charged to a related company which could recover input tax, you may be able to mitigate the cost slightly by issuing a VAT-only invoice.
VAT only invoice
Theoretically, if an organisation should have been registered for the past 11 years and their only customer would accept a VAT only invoice, can just one invoice be issued to cover the 11 year period, so that the customer can claim it all back and payover the whole amount of VAT to the orgainsation, thereby ensuring that the organisation is not out of pocket?
VAT only invoice
In answer to G Grahame's comment
'Theoretically, if an organisation should have been registered for the past 11 years and their only customer would accept a VAT only invoice, can just one invoice be issued to cover the 11 year period, so that the customer can claim it all back and payover the whole amount of VAT to the orgainsation, thereby ensuring that the organisation is not out of pocket'
What about the time of supply rules?-
VAT becomes due on a supply of goods or services at the time of supply. I'm not sure you could go back 11 years and issue a VAT only invoice. How do you account for different VAT rates on a VAT only invoice? I think the 4 year cap may apply.
I would welcome any other thoughts on this topic