My client should have registered for VAT in April but we have only just registered him now. He made £20k of sales in June which he will be liable to pay output VAT on. Is there anyway that he can charge this to his own customer on a separate invoice (they are VAT registered so they could claim it straight back) or should he do a credit and re-bill, or is it too late to do anything about it?
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Issue VAT only invoices
As long as he is now registered and has a VAT number, he can issue VAT only invoices to his customer for the VAT that should have been charged.
whooooaaaaa
Watch out for your timing. If the business was not vat registered effective for June, you cannot now issue a vat invoice for June.
What EXACTLY has happened. Has the vat registration been (correctly) dated back to April. If so, yes, you can and should issue vat only invoices to the customers (having obviously primed them that there was a [***]-up and apologise for inconvenience etc etc) - or you could credit note and re-invoice. Whatever works best for the cutomer, frankly.
Be careful with credit and re-invoice
If the registration was backdated to the correct date, you would have to include VAT on the credit note if it was dated on the same day as the original invoice which you are trying to correct or on today's date. You could only avoid this by dating the credit note prior to the date of VAT registration and hence, prior to the date of the original invoice, which would be a nonsense. It would be safer to just raise a VAT only invoice after the date of registration.
Be careful, be very very careful...
Given your comment that you have only just registered your client now suggests that the registration was submitted rather late, and your client is liable to a failure to notify penalty. Your client is going to have to account for back VAT on all invoices issued on the basis that the invoiced amounts included VAT. So out of the £20,000 for June he's going to have to find 3/23rds to pay the VAT man, as he will for all the other amounts between when he should have been registered and the date on which HMRC received his application. As I understand it under the new penalty régime the penalty will be based on the amount of VAT that should have been paid to HMRC - this will be based on the invoiced amounts being VAT inclusive. This is important because the penalty is tax based - even if dealt with under the old rules.
Now, if your client issues VAT only invoices to his customers that will be for 15% on top of the invoiced amounts. He will have to account for the difference in VAT. About 2% more VAT to pay to HMRC, but as you say his clients will be able to recover this, it's a cash flow issue. It is important to get this right as if this additional amount is paid late there'll be interest to pay on it.
I would not recommend credit notes as these are only accepted by HMRC where there is a change in the value of the supply, which doesn't appear to be the case in this instance.
VAT REGISTRATION ISSUES
I have just joined this forum looking for information on a similar situation for a new client who needs our help.
Essentially my client wants to register for VAT purposes and has paid invoices from her client going back to about 16 months when she started to trade.
The invoices are for two of her customers.
She wants to know whether or not she should issue VAT only invoices covering the 16 months to her clients as they are both registered and would be able to claim it back.
Would HMRC be willing to listen on this issue or should i advise her that she could be liable for penalties.
Any insight would be appreciated.
Sounds slightly different
The original poster has a late registration. From your question it sounds as if the client would like to register rather than having to register? You wouldn't normally have to register from the day you start trading. I'm not sure what the benefit would be in doing a voluntary registration back to the commencement of trade. Your best bet would be to get her registered now and account for VAT on supplies made from the date of registration. If it is still a voluntary registration now, choose a convenient date and go from there.
Or alternatvely, can you provide more information about why you want to back date registration by 16 months?