VAT errors

VAT errors

Didn't find your answer?

I have a client who has 'miscalculated' flat rate VAT for the past two years. Despite me pointing out these errors, he has not adjusted returns and as such has under declared. His errors are twofold;

1. calculating his 'net' earnings (by deducting 20% VAT) and paying flat rate VAT of 10% on the net,

2. in a quarter where he bought a capital item, he has reclaimed all purchase VAT in that quarter and has not left the flat rate scheme to do so.

He's an educated man and I don't believe these are genuine errors, especially as I've explained the correct treatment twice now (which he appears to understand).

The question is, what is my obligation to HMRC regarding this 'error'?

Replies (5)

Please login or register to join the discussion.

avatar
By levelheaded1903
03rd Feb 2016 18:03

Hi - firstly, the reclaim of purchase vat for a capital item could be allowable depending on whether the item was for £2000 or more (vat inclusive). What professional body are you a member of? The professional conduct in relation to taxation code, gives an outline of how you can approach this, from writing / urging compliance, and then disengaging with the client, ie  if they continue with non compliance. You have client confidentiality to consider so if you need to disengage, a letter to HMRC stating that you are no longer representing the client, but no more than that. That is if indeed you are agent. If you feel that the client is acting fraudulently,then you will need to consider the anti money laundering legislation. There are members on here who know much more regarding AML and hopefully they may post a reply to you too.

Thanks (1)
Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
03rd Feb 2016 18:07

It's not so much a HMRC obligation but an obligation under the AML rules. Do you have a reasonable suspicion that tax evasion is taking place? If so, then you may need to make a report to whoever SOCA is now (NCA? Can't remember).

If you're doing the accounts then the additional VAT should be shown as a creditor in the accounts and I would ensure you have made him aware of the errors in writing.

You can always voluntarily grass him up to HMRC if that floats your boat.

 

Thanks (1)
David Winch
By David Winch
03rd Feb 2016 19:16

Reporting obligations

I agree with previous posters.  There is no obligation to report to HMRC (indeed it would be quite wrong to pass information about the client's financial or tax affairs to HMRC without the client's consent).  If you cease to act for the client then you can tell HMRC that you have ceased to act.

However if you suspect anyone of money laundering (or a terrorist property offence) as a result of information which has come to you in the course of your accountancy practice then you may have a legal obligation to make a Suspicious Activity Report (SAR) to the National Crime Agency under s330 PoCA 2002 / MLR 2007.

A key issue for you is deciding whether the client is lazy / clueless or dishonest.  A deliberate failure by the client to correct an error in his favour may be dishonest.  That dishonesty may amount to a criminal offence from which the client has obtained a financial advantage.  That in turn may mean the client has committed a money laundering offence.

So if you suspect the client of dishonesty you will IMHO most likely have an obligation to report by submitting a SAR.  The best way to do that is online.

David

Thanks (1)
By petersaxton
04th Feb 2016 07:19

SARs

How many SARs get acted on?

My opinion is that they have to be "sexy" before anybody is interested.

Thanks (0)
Replying to DJKL:
David Winch
By David Winch
04th Feb 2016 08:10

Do SARs get acted upon?

petersaxton wrote:

How many SARs get acted on?

My opinion is that they have to be "sexy" before anybody is interested.

I think that whether (& when) a SAR gets acted upon depends on a number of factors - some of which may seem fairly arbitrary!

It depends of what type of underlying offence is suspected (tax evasion? drug trafficking? fraud? money laundering for OCGs?), how strong the suspicion & evidence behind it is, how well put together the SAR is in terms of enabling the NCA or whoever to get the point of it, whether the suspected person is already a person known to or of interest to the authorities, what staff & resources the investigating authority (police, HMRC, DWP, local authority etc) have available & what their priorities are, how complex the case appears to be, how much is involved, & so on.

David

OCG = organised criminal group

Thanks (0)