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Client in denial that they charged vat

Online store using shopify

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A new client with annual sales of about £50,000 and not registered for vat continues to argue that they have not changed customers vat on their invoices. They use shopify to sell their products to UK consumers only. The evidence, the sales invoices have vat on them and the csv reports also show vat paid.

The system doesn't appear to be very user friendly and easy to understand and although I've tried to find out additional information about the software,  it's a bit limited. There is some guidance that in the default settings, if the button is not unchecked then the selling price includes vat before any discount is given to consumers.

The client thought the price charged,  the selling price excluded vat and this was the intented payment for the product. The reality is that  the sales are 4k less than they intended as they didn't uncheck the box and the sales figures on the invoices are inclusive of vat.

How would you approach this? Is it possible to write to consumers explaining that they were charged vat on the sales invoices by mistake but the price would have been the same as the client wanted to charge this price exclusive of vat. There are hundreds of small amounts of vat over a ten month period.

or do they have to repay all the vat back to customers because it was their error or inform HMRC about the vat collection.

The client currently has a slow down in activity and wouldn't be able to repay this amount quickly.

Replies (32)

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By sculptureofman
15th Feb 2019 13:35

I presume it's not an issue, if the sales are B2C. The price paid is the consideration, and would be the same if it was VATable or not as far as the consumer is aware.

Also in theory no one will be able to recover VAT on these purchases as they won't have a valid VAT invoice, so no lost revenue for HMRC.

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By legerman
16th Feb 2019 10:45

Presuming the error can be corrected going forward I would take the sales figure including VAT as the accounts figure. No need to inform anyone, as you say the price would have been the same anyway

*EDIT* in light of further comments. I would inform HMRC VAT of the situation with a full explanation of the facts.

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By atleastisoundknowledgable...
16th Feb 2019 07:37

Make it simply - uncheck the box so alls well going forward ... just act as if that’s always been the case & go with the client’s thought.

What’s your intention otherwise, backdate a VAT Reg pay it over, then dereg? Just because the client didn’t uncheck a box of some hard-to-use software? You might find he’s no longer a client.

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By andy.partridge
16th Feb 2019 09:13

Softies.

What is VAT fraud?
VAT fraud is a type of tax evasion. It happens when a business doesn’t charge VAT when they should, or charges you VAT but doesn’t pay it to HMRC.

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Replying to andy.partridge:
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By atleastisoundknowledgable...
16th Feb 2019 09:58

But they weren’t vat registered (and weren’t required to be), so they couldn’t charge vat.

Oh wait, your just going to respond with “well they’ll have to refund it then” aren’t you.

I’m surprised the number of people on here who don’t like keeping clients.

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Replying to atleastisoundknowledgable...:
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By andy.partridge
16th Feb 2019 12:45

I'm surprised (no, I'm not actually) at the number of people who are prepared to feign gullibility in order to earn a shilling from a dishonest client.

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Replying to andy.partridge:
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By Cheshire
16th Feb 2019 10:00

With penalties

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Replying to andy.partridge:
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By legerman
16th Feb 2019 10:43

andy.partridge wrote:

Softies.

What is VAT fraud?
VAT fraud is a type of tax evasion. It happens when a business doesn’t charge VAT when they should, or charges you VAT but doesn’t pay it to HMRC.

No fraud has taken place. Fraud is an intentional act and can't be committed unwittingly. The OP's client has failed to untick a box that has calculated VAT on a shopify account, which has resulted in shopify calculating a VAT amount and a nett amount. Had the box not been ticked there would have been an amount equal to the nett and vat combined, and as long as OP declares gross amount on tax return no one loses out.

In hindsight it would be a good idea to inform HMRC VAT of the situation but that is certainly as far as I would take it.

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Replying to legerman:
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By andy.partridge
16th Feb 2019 12:52

legerman wrote:

No fraud has taken place. Fraud is an intentional act and can't be committed unwittingly.

In a nutshell you have the ubiquitous defence for all fraud cases. If it is to be believed, no fraud takes place anywhere. Ever.

I think your final sentence is a good one. If, for a moment, the OP thinks HMRC might make life difficult for their client over the issue it, paradoxically, confirms that they should be advised of it.

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Replying to andy.partridge:
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By legerman
17th Feb 2019 10:01

andy.partridge wrote:

legerman wrote:

No fraud has taken place. Fraud is an intentional act and can't be committed unwittingly.

In a nutshell you have the ubiquitous defence for all fraud cases. If it is to be believed, no fraud takes place anywhere.

Fair enough, I have assumed that this is a genuine mistake by the OPs client, but likewise you have assumed the client has been dishonest.

I stand by my statement though, fraud has to be proved to be intentional for it to be fraud. If the client insisted that the sales were (say) £50k which were the nett sales on shopify, then I'm happy to admit you're right. If the client says fine, my sales are £60k, then, other than a nod to HMRC, nothing further to be done and no fraud has taken place.

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Replying to legerman:
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By andy.partridge
17th Feb 2019 16:36

I wonder for how long the situation would have to persist for you to consider it not to be an honest mistake. A day? A week? A month, maybe . . . but a year and beyond?

I would contend that the customers will have all believed from day 1 that they were paying VAT and that some of their hard earned cash was being paid over to HMRC to help pay for schools and hospitals and not, instead, to be retained by the supplier. Indeed, they have documentary evidence to back that up.

It would be understandable for the customers to believe they have been misled and overcharged.

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Replying to andy.partridge:
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By legerman
17th Feb 2019 21:22

andy.partridge wrote:

I wonder for how long the situation would have to persist for you to consider it not to be an honest mistake. A day? A week? A month, maybe . . . but a year and beyond?

I would contend that the customers will have all believed from day 1 that they were paying VAT and that some of their hard earned cash was being paid over to HMRC to help pay for schools and hospitals and not, instead, to be retained by the supplier. Indeed, they have documentary evidence to back that up.

It would be understandable for the customers to believe they have been misled and overcharged.

The OP hasn't updated us but let's say this was me. I would have picked it up straight away (as I assume the OP has) and asked the necessary questions. If the client is monthly then obviously straight away. If this is an annual client and I get their paperwork 6 months after the year end then a year is quite feasible.

You really think that the end B2C customer will have assumed some of what they paid was to help schools and hospitals? I very much doubt they were under that misapprehension. I certainly don't buy something and think oh goody, I've just helped fund the NHS or whatever.

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Replying to legerman:
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By andy.partridge
17th Feb 2019 22:58

You’re not following. Not how long might it take the OP to pick it up. How long might it take an honest client to pick it up AND do something about it.

You seem to be suggesting that an ‘honest’ client can take forever and only needs to act once their accountant advises them. Presumably, if their accountant doesn’t advise them then it’s perfectly ok to carry on ad infinitum, despite knowing of the problem and choosing to do nothing.

If you don’t mean that, what exactly do you mean?

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Replying to andy.partridge:
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By legerman
18th Feb 2019 09:29

andy.partridge wrote:

You’re not following. Not how long might it take the OP to pick it up. How long might it take an honest client to pick it up AND do something about it.

Neither of us are party to the conversation that took place but I envisaged something along the lines of. "You've got VAT on these sales but you're not registered" "Oh have I, I've never charged VAT" "Well according to Spotify you've got c£41700 sales and £8300 VAT" "But I can't have, I don't charge VAT"

If the client did know then your point is valid but my assumption is based on the title of the thread and what the OP said the Spotify VAT box being preticked. I've also assumed that the client hadn't realised this until it was pointed out to him/her. If I'm wrong fair enough but I don't immediately jump to the conclusion the client is a dishonest fraudster.

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Replying to legerman:
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By andy.partridge
18th Feb 2019 10:00

legerman wrote:

< I don't immediately jump to the conclusion the client is a dishonest fraudster.

Neither do I (despite appearances to the contrary). I would be on a state of high alert over this if the client is blithely telling me that they hadn't noticed that ALL the documentary evidence available over the course of a WHOLE year was telling them that they HAD 'erroneously' charged VAT.

Either the client is taking me for a fool or the client is a fool. That needs looking at.

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Replying to legerman:
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By andy.partridge
18th Feb 2019 09:13

legerman wrote:

You really think that the end B2C customer will have assumed some of what they paid was to help schools and hospitals? I very much doubt they were under that misapprehension.

I think you mean 'apprehension', don't you? That aside, I agree that it might not be the first thought that comes to mind when buying stuff generally.

However, if we are talking about a perception of having been swindled, about having paid VAT to a person/business that had no intention of paying it over to HMRC then I think you would get there in the end, especially if you were talking about it with other people.

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By Wanderer
16th Feb 2019 10:19

http://www.legislation.gov.uk/ukpga/2008/9/schedule/41

Issue of invoice showing VAT by unauthorised person
2
(1)A penalty is payable by a person (P) where P makes an unauthorised issue of an invoice showing VAT.
(2)P makes an unauthorised issue of an invoice showing VAT if P—
(a)is an unauthorised person, and
(b)issues an invoice showing an amount as being value added tax or as including an amount attributable to value added tax.
(3)In sub-paragraph (2)(a) “an unauthorised person” means anyone other than—
(a)a person registered under VATA 1994,
(b)a body corporate treated for the purposes of section 43 of that Act as a member of a group,
(c)a person treated as a taxable person under regulations under section 46(4) of that Act,
(d)a person authorised to issue an invoice under regulations under paragraph 2(12) of Schedule 11 to that Act, or
(e)a person acting on behalf of the Crown.
(4)This paragraph has effect in relation to any invoice which—

(a)for the purposes of any provision made under subsection (3) of section 54 of VATA 1994 shows an amount as included in the consideration for any supply, and
(b)either fails to comply with the requirements of any regulations under that section or is issued by a person who is not for the time being authorised to do so for the purposes of that section,
as if the person issuing the invoice were an unauthorised person and that amount were shown on the invoice as an amount attributable to value added tax.

Also look at Sections 5 on.

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By frankfx
16th Feb 2019 19:53

Lesson?
A business should do some crash test dummy transactions when using third party software or e commerce plug ins.

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By Marky
18th Feb 2019 09:44

Thanks for the responses. The client has asked me to prepare annual accounts but I asked them to forward reports etc to get a quick start and then noticed the vat issue.

The client would include the vat element as additional sales and going forward make sure the box is unchecked but as I explained I believe the shopify software is not very user friendly and is a genuine mistake by the client.

Still not 100% certain how to approach this as there appears to be a mixed response to the query.

My gut is telling me to recognise additional sales, correct the sales invoices going forward and as the customers are consumers then there is no hit for HMRC but my head is telling me I should do more than this.

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Replying to Marky:
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By Cheshire
19th Feb 2019 09:13

He had a duty of care to his customers and indeed to his company.
Careless or stupid at best, why would you not check the very first invoice, spot the glaring error and find a way to sort it out. It might be hard to find how to get rid of the vat line initially as he isn't used to the software, but these websites have help files/help desks/ forums to ask. No excuse. Frankfx is spot on.

Wanderer pointed you in the direction of the legal bit, worth a look at this, which is the HMRC bit to link in with the act. https://www.gov.uk/government/publications/compliance-checks-penalties-f...

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By lionofludesch
18th Feb 2019 18:41

All these problems will be a thing of the past when MTD arrives. ©

Seriously - how can HMRC keep claiming that digital accounting will reduce errors?

Fex ache.........

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By Marky
19th Feb 2019 09:30

Cheshire, this is a new client and they have included the vat for eight months before they sent the CSV reports and sales invoices. I'm preparing annual accounts but wanted to get a quick start with the client hence finding out about the vat rather than in another four or five months time.
The client maintains it's a genuine mistake but I will be informing them this morning that we must write to HMRC explaining the situation.
If the client kicks off and I lose them then so be it, I would never hold onto a client by giving them the wrong advice and not going through the correct procedure.

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Replying to Marky:
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By Cheshire
19th Feb 2019 09:49

Hopefully you will keep him as you should be able to sell it that you will have saved him from a bgger fatter fine if you hadnt been so on the ball/HMRC had received a complaint, the latter feasible if he sold anything to a vat registered business.

Im sure it will be a lesson learned by him.

Good luck with it - let us know how you get on with HMRC.

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By Marky
19th Feb 2019 11:37

Cheshire, is it the Newcastle office or Glasgow office for postal letters.

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By colinhigginson
12th Mar 2019 17:18

The invoices would not have had a VAT number so none of the customers should have claimed any VAT back.

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Replying to colinhigginson:
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By lionofludesch
12th Mar 2019 17:46

colinhigginson wrote:

The invoices would not have had a VAT number so none of the customers should have claimed any VAT back.

Oh - you've seen one of these invoices ?

Or have you just made it up ?

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Replying to colinhigginson:
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By Wanderer
12th Mar 2019 17:52

colinhigginson wrote:

The invoices would not have had a VAT number so none of the customers should have claimed any VAT back.

As Lion says, also irrelevant to the OPs query.
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Replying to Wanderer:
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By lionofludesch
12th Mar 2019 18:12

Well, there are a number of points of varying relevance but I would also point out that "shouldn't" and "didn't" aren't synonymous.

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Replying to lionofludesch:
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By Wanderer
12th Mar 2019 19:56

Point I was making is that the OP said "They use shopify to sell their products to UK consumers only. "
Dictionary definition of consumer is "a person who purchases goods and services for personal use."

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Replying to Wanderer:
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By colinhigginson
13th Mar 2019 10:11

The point is that their error was simply ticking a box, or leaving it ticked. To produce a VAT invoice they would have had to enter a VAT number also. So no fraud, just treat it as income as was the intention of the client.

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Replying to colinhigginson:
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By Wanderer
13th Mar 2019 10:19

Think you'll find that the penalty regime doesn't require fraud.

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Replying to Wanderer:
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By lionofludesch
13th Mar 2019 10:25

Ach - just wait for the next VAT visit.

We'll all be dead by then and it'll be someone else's problem.

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