Very difficult situation
In summary, a potential client has approached me as they think they have a problem. I feel genuinely sorry for them as it appears to be a completely honest mistake howevr it is potentially going to send them under.
Basically, they have been contacted by HMRC under the VAT disclosure initiative but they ignored the letter as "it doesn't apply to us" and put it in with all their papers and I found it when rummaging through.
When I saw them yesterday it was ther and on going through it appears they should have registered for VAT as they are "just" over the threshold. The issue arises that on going back over the last two years of their records they should have registered in 2008 when in one rolling 12 month period income was some £75k, way over the limit at the time. This it would appear was not spotted as it was the year they changed their company year end to 31 March to be in line with the tax year. Their previous advisor failed to spot this.
After this period in 2008 their income did drop below the limit for a while and accounts for 2009 show they are under so I suppose it never raised it's head again.
Having looked at their records I estimate they should have registered in 2008 and after allowing for input tax deductions their net liability to HMRC will be some £25k. Obviously they were a tad upset when I pointed this out.
As a company they do not make a great deal, each director shareholder earns £20k out of the business and they operate hand to mouth like a lot of small clients do. Personally they do not have a lot, one lives in council rented and one in a small house( value £170k) with 2 kids and a decent mortgage - you probably have clients like this.
They have said they have to obviously disclose the error (which meant I didn't have to walk away from th emeeting and end the relationship there) and asked how long they would get to pay it back - I said that in the current climate HMRC would accept a plan and they reckon they could afford £100/week - so £5k pa which means HMRC would not get all the money for 5 years. They are going to tell HMRC and see what happens as they accept they owe the money.
I have left it with them that I will take further advice before doing anything or deciding to accept the appointment but they are a friend of friend so I don't want to leave them in the lurch. They are scared of going bankrupt for not being able to payup - I pointed out it was the company that would go bankrupt not them if they couldn't pay but that was not a great consoloation.
Before I take further professional advice, and one meeting I will be having is with an IP as basically this will put the company insolvent to the tune of this vat debt as they have no money in the bank, no assets (2 vans worth £500 each), have any readers had clients make declarations under this initiative and if so have HMRC indicated how long they might get to pay back the money.
Also, should this have been spotted by their previous advisor - he didn't prepare the accs for them he merely advised on the errors in the sets they produced themselves using downloaded templates - he didn't have a great deal of input but optentially could have spotted this.
As you can imagine I in two minds as to what to do next - run is the first one as I doubt it will earn me any money but as I said earlier they are a friend of a friend so I want to do the right thing - if that is run then I will
- Do I need to report this to SOCA 3,682 39
- Holiday Pay whilst on Mat Leave 65 1
- Accounts Software 126 5
- HMRC Agents Line 193 4
- calculation DTR restriction 76 1
- Company Director In Prison 443 11
- SMP reclaimable by employer 63 1
- AWeb - download file 164 3
- Charity work 232 11
- Help with HMRC investigation 243 6
- Director Drawings 159 5
- Subcontractor and CIS Deductions made by Contractor 261 13
- Managing Employee Expenses 224 7
- Collection or business assets 102 1
- Incorporated when they should not have 269 8
- Tax position re this lease? 371 9
- Do I need a smartphone? 725 23
- Is compensation for surrender of a lease subject to VAT 104 2
- Can I take action against my accountant for incompetence? 3,674 70
- IHT 205 partnership and business interests 90 2
- Property exchange - 8-year legal delay following fall-out 677
- Have you staged yet for auto enrolment? 518
- Cancelled 427
- Cancelled 365
- SAGE Payroll Data for Import to MS Dynamics AX 362
- Probiz 335
- Free-standing washing machine - unfurnished lettings 327
- Phishing emails purporting to be from CIPFA? 243
- Is this UK incapacity benefit taxable in UK or Jersey? 215
- Another HMRC computer glitch? 203