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

Thoughts welcome

 

 

Comments
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Couple of thoughts

Paul Scholes |
Paul Scholes's picture

Realistic

Daffy Duck |
Daffy Duck's picture

HMRC are not to blame

BKD |
BKD's picture

Thanks so far!

Ding Dong |
Ding Dong's picture

If they have no money or

Tosie |

New start

Daffy Duck |
Daffy Duck's picture

MLR (not)

davidwinch |
davidwinch's picture

Against a new start

Flash Gordon |
Flash Gordon's picture

As always, David

PennyC |

OK - here comes the flack

Daffy Duck |
Daffy Duck's picture

Differences of opinion are fine

Flash Gordon |
Flash Gordon's picture

Might not be a bad as you think

Roland195 |

What is the customer base

valentino rossi |
valentino rossi's picture

VAT only invoices

accountright |

Flash

Daffy Duck |
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£20K liability?

Paul Scholes |
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My 2p

Monsoon |
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The problem is ...

Old Greying Accountant |
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If you don't ask

Flash Gordon |
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thanks v much all

Ding Dong |
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From experience

Monsoon |
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-

Daffy Duck |
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Professional advice

Paul Scholes |
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Wellbeing of creditors

Monsoon |
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Just to add another angle

zarathustra |
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Not registering

BKD |
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Quote

Daffy Duck |
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HMRC internal guidance

DMGbus |
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Another quote

BKD |
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Guidance

Daffy Duck |
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Clarification please

ShirleyM |
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Selective quotation

BKD |
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Retrospective request for exception - HMRC internal guidance

DMGbus |
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@daffy

ShirleyM |
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Shirley

Daffy Duck |
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What are you trying to say?

BKD |
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Thank you Daffy

ShirleyM |
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@Shirley

BKD |
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Thanks BKD

ShirleyM |
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It is YOU that is selectively picking sections that suit

Daffy Duck |
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Are you ignoring 2.7 on purpose

valentino rossi |
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Its worth talking to VAT registration unit

Chris Smail |
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Spot on

BKD |
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Thanks Valentino

ShirleyM |
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My tuppence worth

PennyC |

Ignorance of the law

Daffy Duck |
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Unbelievable, quite unbelievable

BKD |
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-

Daffy Duck |
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Daffy

Paul Scholes |
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Moderation

Becky Midgley |
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