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BACKDATING VOLUNTARY REGISTRATION

NEW VAT REGISTRATION

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Hi,

I have a client company who is not registered for VAT as its turnover is well below the VAT threshold. Two years ago, it has issued a few sales invoice + VAT and paid for some suppliers. Can the company now backdate a voluntary VAT registration to: declare and pay vat on sales invoices and claim input vat on the suppliers? 

If so, would there be any penalties for late registration with regards to output vat invoiced from the sales invoices?

What would be the normal first VAT period? ie 2 years + 3 months?

There would be a net VAT payable on the past transactions.

Many thanks in advance.

 

Replies (20)

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By David Ex
07th Oct 2021 16:41

happyface wrote:

company who is not registered for VAT as its turnover is well below the VAT threshold. Two years ago, it has issued a few sales invoice + VAT 

Err, what happened to the VAT that the company incorrectly charged??

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Replying to David Ex:
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By lionofludesch
07th Oct 2021 18:20

David Ex wrote:

happyface wrote:

company who is not registered for VAT as its turnover is well below the VAT threshold. Two years ago, it has issued a few sales invoice + VAT 

Err, what happened to the VAT that the company incorrectly charged??

Bit harsh - the fella's trying to pay it and put matters right.

We've all had gormless clients at some time or other.

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Replying to lionofludesch:
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By David Ex
07th Oct 2021 20:48

lionofludesch wrote:

Err, what happened to the VAT that the company incorrectly charged??

Bit harsh - the fella's trying to pay it and put matters right.

We've all had gormless clients at some time or other.

Didn’t think it was that inappropriate a question. Genuinely interested to know what the OP’s client did with the 20%.

For what it’s worth, I think charging VAT on “some” (not even all) invoices when you aren’t VAT registered is a good few stops past gormless.

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Replying to David Ex:
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By lionofludesch
08th Oct 2021 10:15

David Ex wrote:

For what it’s worth, I think charging VAT on “some” (not even all) invoices when you aren’t VAT registered is a good few stops past gormless.

You've obviously been very fortunate so far.

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chips_at_mattersey
By Les Howard
07th Oct 2021 16:46

There would only be a penalty if the client was obliged to register for VAT. In theory there is a penalty for charging VAT on an invoice whilst not registered, but I have never seen it used.
Once you have a registration date agreed, all outputs since that date are liable to VAT at the appropriate rate.
And yes, you will have a long period VAT Return. Legislation allows HMRC to issue a Return for a period of any length.

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Replying to leshoward:
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By happyface
07th Oct 2021 17:36

Hi Les,
Thanks for your response.
Would there be any penalties on the output VAT wrongly charged on invoices?
I am trying to correct the error made by the client and declared all output vat and at the same time, claimed any relevant input vat within this long vat period.
Or do you think it would be better to 'let sleeping dogs lie' as suggested by other contributor..

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By VATs-enough
07th Oct 2021 16:51

HMRC don't take kindly to non VAT registered entities issuing VAT invoices..... go figure

As pointed out by David, where did the VAT that was charged and collected go ?!?

Need to have a read of HMRC compliance factsheet CC/FS12. They consider this 'Wrongdoing'

If your client is lucky, a gentle tap and/or warning but you are in the realms of maybe having to have a very awkward conversation with HMRC

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By Wanderer
07th Oct 2021 17:12

What is the quantum of VAT wrongly charged on the 'few'?

Depending on that it may be better to just let sleeping dogs lie. Their customer shouldn't have claimed back any VAT as there wouldn't have been a valid VAT invoice.

Doubt if I'd go for voluntary backdated registration. You do understand that if you were successful in back dating to day 1 they would have to account for VAT not only on the 'few' but on all their other sales as well? Even those they haven't charged VAT on.

Probably better to refund the VAT mis-charged to their customers.

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By fawltybasil2575
07th Oct 2021 17:59

@ happyface (OP).

If I correctly interpret your question (my comments below are based upon that such interpretation is correct) you are proposing to backdate a VAT registration, but to then ONLY account for Output Tax on the sales for which the VAT invoices have been issued (and to recover the Input Tax on Inputs to which those sales relate).

The result of so doing is to thereby EXCLUDE all the other Output Tax which would be deemed to be included in those OTHER sales (and to likewise disregard the Input Tax on other valid invoices received).

As has been mentioned above, such action would be ENTIRELY incorrect, and would result in a false VAT Return being submitted (ie whilst in PRINCIPLE it is perfectly in order to back date a registration, one must ensure that the resultant long period VAT Return is CORRECT).

Consequently, the only action now required is to rectify the current breach of the VAT legislation which renders the issue of purported “VAT Invoices” probably unlawful (see below for my qualification to this remark). One has to ask, of course, whether the client showed a VAT Registration Number on the purported “VAT Invoices”.

If such VAT number was shown, then of course it must have been a false number whereas, if no VAT number was shown, then it was arguably not (strictly speaking) a VAT Invoice at all - hence my above reference to a “qualification” of my comment, ie if one omits a VAT Number from the invoice, then arguably (since thereby it is not a VAT Invoice) one has not issued a VAT invoice improperly at all !

If one takes no action re the issue of the purported “VAT Invoices” then one has committed an offence, inasmuch as one has obtained, and retained, monies to which one knows one is not entitled (akin to taking no action when one ascertains that one’s bank account has been credited with monies to which one knows one is not entitled).

So, the only action required is to contact the customers to whom the purported “VAT invoices” have been issued, notify them of the errors on those invoices , and request their notifying you of the bank account details into which they wish the excess monies to be refunded (and furthermore to “chase” them for a written response, to show “clean hands”). Hopefully, those customers are still in existence (no purpose served by my commenting further if any one or more of those customers do not respond).

Basil.

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Replying to fawltybasil2575:
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By Hugo Fair
07th Oct 2021 18:58

A comprehensive answer as always, thanks.

But does your suggested resolution (which makes perfect sense to me - legally and pragmatically) vary in any way IF the VAT invoices were issued improperly (i.e. with a false VAT number shown)?

And when you say ".. notify (the customers) of the errors on those invoices ..", does this mean an official C/N should be issued (or a replacement invoice or no paperwork at all)?

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Replying to fawltybasil2575:
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By happyface
07th Oct 2021 20:10

I must sincerely apologies for the misunderstanding. The reason for my backdating on the voluntary registration is to put everything right.
The client company did the invoice just before lockdown last year and the directors were not aware of the implications of issuing the invoice without registering for VAT. To put everything right, I intend to backdate the registration and include all sales invoices (declaring the output vat of all sales) and claiming any input vat on supplies and expenses. Do you think this will help correct the errors?
My only concern was whether this would cause an inquiry from VAT office and if any penalties would be due and if so, the 'quantum' of these.

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Replying to happyface:
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By fawltybasil2575
07th Oct 2021 20:34

Your last post refers to ONE "invoice" whereas your original question refers to a "few" invoices.

Without knowing (1) the complexities which would arise from determining the entire Output Tax and Input Tax figures (or on the "mix" of VAT -registered and non VAT-registered customers) and (2) the VAT which would be payable for the long VAT period, it is not easy to advise for certainty.

However, since I suspect that your major concern is the prospect of Penalties, I would have to say that such prospect (i) would be remote and (ii) would be almost certainly removed altogether regardless of whether you adopted Plan A (backdating a registration) or my Plan B (refunding, to the customer(s), the "VAT" added to the invoice(s) at issue).

Almost certainly, I would regard Plan B as appropriate.

Basil.

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By fawltybasil2575
07th Oct 2021 20:45

@ Hugo (your post at 18.58).

Thank you. for your kind comments.

(i) Re your asking re a false VAT number, my advice would remain unchanged. I would however add that the OP should also consider whether a SAR needs to be submitted to NCA (such decision would IMHO depend upon whether they consider that there was any criminal intent in the client’s actions – if so, then “Yes” – in not, then “No”).

(ii) Re your second point, then yes, I would certainly advise the issue of either a revised invoice or a credit note (frankly, it matters not which).

Basil.

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Jason Croke
By Jason Croke
08th Oct 2021 09:50

If I can add another view.

Where a business issues a VAT invoice and they are not VAT registered, the business is called an "unauthorised person" and the VAT that was charged on the invoice isn't actually VAT (because it is only VAT if you are VAT registered), so the "VAT" is known as a crown debt.

Link here explains it in detail and also has links to how HMRC deal with this. Read all the links embedded in the article within the link below. Appreciating it was an error, but as another poster has asked, how do you pay VAT to HMRC if you aren't VAT registered?
https://www.gov.uk/hmrc-internal-manuals/vat-assessments-and-error-corre...

Will HMRC ever know? Probably not, unless they inspect the end customer VAT returns and they get lucky in pulling out your clients invoice (if customer was not a business then even less chance of HMRC finding out).

As others have stated, repaying the "VAT" to the customer might at least remove any accusation of fraud, but like with all things tax, the technical answer is that this must be disclosed to HMRC and the penalties taken on the chin or refund the customers and hope nobody notices (not the legally correct response). As an accounting professional you can't formally advise a client to just ignore it, although the client may well choose to and if they don't refund the customers then potentially a ML matter.

As VATs-enough has posted, there is guidance in CC/FS12 and there may be penalties unless HMRC can be convinced this was a genuine error
https://assets.publishing.service.gov.uk/government/uploads/system/uploa...

If going disclosure route, you need some robust reasons why this error happened, you can't just say they didn't know. If the client was issuing invoices with and without VAT, it doesn't feel like an error (errors are usually consistent), whereas if one invoice is with VAT and another without, it suggests a thought process such as maybe VAT is charged to corporate clients and not charged to personal customers.

As for registering for VAT voluntarily, yes that is an option, you could submit a voluntary registration to cover the period of ALL the invoices raised, you could then limit the risk by deregistering straight away so client has a 1 or 2 month return but a late registration is still subject to late registration penalties, carelessness to hope for and trying to steer HMRC away from issuing a deliberate penalty, so you may need to crunch the numbers and see which is least painful, disclosure of the crown debt+penalty and remain unregistered for VAT, register for VAT and then deregister as short a period as possible and pay the VAT+penalty or do nothing and fingers crossed.

The 2nd link above (CC/FS12) has a table that shows what penalties applies depending on whether HMRC believe this was non-deliberate or deliberate, so you can work out what the penalties might be if HMRC are not feeling generous towards the client.

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Replying to Jason Croke:
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By happyface
08th Oct 2021 10:02

Thanks Jason and everyone else for your comments and contributions. It has been most helpful.

Again, I must apologies for my incomplete information which caused a bit of misunderstanding. I took over the client who hasn't done much since lockdown. The directors were new to the VAT implications. There were only a few sales invoices issued and all of them were issued with VAT charged. There were no VAT number stated on these invoices. There was never the intention of fraud. The directors thought all invoices must be issued supposedly with VAT to be charged. They were not aware that because they have issued the invoices + VAT, they would need to register for VAT (as they thought their threshold is way below the limit).
I have since advised them of the problems involved.
I intend to backdate the registration, declare all sales invoices and claim any cost/ expenses invoices. This would at least mitigate the errors and bring everything up to date.
My worry was on whether any penalties would be levied. Jason has include comments on this for which I am grateful.
I would go with backdating the registration and incorporating all transactions in one return to clear the errors. Do you think this is the best option?
Many thanks

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Replying to happyface:
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By lionofludesch
08th Oct 2021 10:17

happyface wrote:

I would go with backdating the registration and incorporating all transactions in one return to clear the errors. Do you think this is the best option?
Many thanks

It won't be an option. If you register now and backdate the EDR, you'll just get one return.

No picking. No choosing.

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Replying to happyface:
Jason Croke
By Jason Croke
08th Oct 2021 10:19

You need to crunch the numbers and assume penalties will apply.

If you backdate register for VAT, you can reclaim input tax as normal, which may offset the output tax due, might even be a refund but note HMRC always verify first returns and so they will ask for copies of sales and purchase invoices, the sales invoices will show they were issued 2 years ago, so HMRC may not twig the crown debt matter but will see the VAT was collected two years ago and only now being paid over.

With situations like this, the client will just see the outcome as a VAT registration with maybe a penalty, but the real value of your time is calculating which is the best route (disclose as crown debt or voluntarily register) based on potential penalties, that is where your fee is earned (it would be if it were me, paying for me to get the best result, not paying me to register the business for VAT). Advice is always the most valuable commodity here, but incredibly difficult to quantify and bill as client only see a VAT form to sign and job done.

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Replying to happyface:
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By lionofludesch
08th Oct 2021 10:28

happyface wrote:
There were only a few sales invoices issued and all of them were issued with VAT charged.

How much VAT is involved ?

Ten grand ? Ten bob ? Somewhere in between ? Worth HMRC's while to make a fuss? Worth your while defending a penalty ? Enough for your client to go to jail?

As accountants, we like numbers instead of words like "a few".

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By I'msorryIhaven'taclue
08th Oct 2021 12:39

Would HMRC accept a backdated voluntary registration?

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Replying to I'msorryIhaven'taclue:
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By lionofludesch
08th Oct 2021 12:54

I'msorryIhaven'taclue wrote:

Would HMRC accept a backdated voluntary registration?

Yes. I've done it countless times over the years.

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