John Cotter
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Errors from former practice in VAT

Errors from former practice in VAT

A new small retail client has recently transferred their Accounting to my firm.

The reasons were due to:

1. A lack of support

2.  the previous accountancy firm issued a schedule showing variances between Sales data provided by the client and actual sales.  

The reasons for the variance was two fold:

1. All sales were not included on client's Revenue schedule

2. A fundamental error by previous accountants resulted in erroneous reporting of Sales, Output VAT and Input VAT

Clearly point 2 is an error of the accountancy firm.  Point 1 is also, as they failed to check the Revenue reported by client to the bank statement which were made available in electronic format.  If they had done this, they would have been able to advise the client  the nature of the problem, rather than give client a schedule asking client to resolve. Also the problem goes back nearly 2 years at least.

My dilemma is the client can not pay the resulting VAT underpaid as the discrepancies cannot simply be absorbed due to the client's cash flow.

Should I raise this with previous accountants and will their indemnity insurance protect the client and stump up for previously unpaid VAT.  

Also small loss last year may need to be restated. 

Your thoughts would be most appreciated.


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24th Apr 2012 16:02

I wouldn't have thought the VAT could be claimed from PII

If the VAT should have been paid, but wasn't (even if it was the fault of the previous accountant), then I cannot see an insurer paying the VAT liability, only any penalties or interest that became due because of the mistake or oversight.

The actual VAT liability will remain with the client ... won't it?

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to Tornado
24th Apr 2012 16:13

I agree but what a nightmare now for the client

Thanks ShirleyM

If the former practice had been better at basic book keeping the problem would not have occurred and VAT would have been paid as and when it fell due.

As a result,  these errors could push a hard up business to the brink - and I do not exagerate.  

I should also add, the former accountants detected the problem months earlier when they called the client, who said "impossible".  Client assumed they made an error and all was well, until a schedule was dropped into the shop many months later detailing the differences going back nearly 2 years.

All the same I suspect your right, VAT will not be covered only the penalties and interest.

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24th Apr 2012 16:08

Not straight forward

The situation you have described will not be easily resolved as it will be a long & complicated process to prove that the previous agent was negligent, especially if they have identified an underpayment and reported it to the clients. In my experience, many firms do not dirty their hands trying to find out the reasons for discrepancies and simply throw it back to the client - they may or may not be supported by their engagement letter and/or institute in this approach.

Ultimately, the Indemnity Insurance will not pay for the actual VAT, only interest & penalties at best.


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24th Apr 2012 16:29


well its all down to client he is ultimately responsible

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to RFSummers
24th Apr 2012 16:37

Poor opinion

That may be correct.

Many small businesses trust the results provided by their accountants and have no real understanding of the intricacies of book keeping and VAT. 

No wonder many folk have such a poor opinion towards the profession akin to lawyers.

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24th Apr 2012 16:45

i am not interested in a slanging match

the quantum is important here and how does it compare with what you are charging


I should also add, the former accountants detected the problem months earlier when they called the client, who said "impossible".  


that is why the client is ultimately responsible

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24th Apr 2012 17:35

Sorry did not want to offend
Hi Carnmores

Perhaps you were offended as you thought I was calling you a lawyer. Anyway no offence intended.

The VAT has been underpaid by £2k in 9 months. Possibly pro rata for 6 years. I have detail records for last 21 months only.

Let us say fees are £50 per month. Turnover is £100k pa.

Kind regards

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24th Apr 2012 23:40

Is it the previous accountants fault?
The accountant may have only recently been provided with the bank statements, or may have only been engaged to prepare the VAT returns from the clients sales documents etc.

absolutely no chance the insurers will pay for this, only interest and penalties IF the old accountant found negligent.

is this a case of client looking to blame anyone but themselves I wonder?

Personally, when I get cases like this I always wonder if the client is a PITA. They usually are.

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25th Apr 2012 09:30

Accountants certainly at fault
dbowleracca - No accountants routinely received electronic form of bank statement. It was their only source of payments. Curiously they recorded all payments from the bank account, but ignored the credits on the statement, instead using the Client's summary of sales schedule.

They handled everything to producing Accounts and preparing SA returns.

I have not told the client yet. I have a meeting scheduled for tomorrow. So at this stage no they are not looking to blame anyone.

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25th Apr 2012 09:57

Have you discussed this with the accountant?
I would be wary of making judgement from listening to just one side of a dispute!

Why don't you call the accountant and have a chat. If you ask them why they did that ... they may just tell you something about the clients records that you are not aware of!

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25th Apr 2012 13:40

LOL John

my god we all know what you mean - you have done nothing wrong so all i was suggesting that you dispose of the matter asap if not the client!


using a client summary for sales is not so bad in theory especially if its greater than the bank receipts!

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27th Apr 2012 15:38

Have written to client by email and followed up by phone.  They think I am right but will investigate by next Wednesday and report back their findings that day.

Client in the meantime cannot pay the retrospective VAT bill. 

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27th Apr 2012 16:08

lol ... do they know anything?

They think you are right that what they have told you is correct, but they will investigate and report back on their findings?

I'm totally confused now :(

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27th Apr 2012 16:19

They know for sure

The implication was....

 'you are probably right that our workings are erroneous '

but they will need to investigate in detail.

They also said this was a client they did not make much money on.  I suppose that is relevant!


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27th Apr 2012 16:42

Ahhh... I was confused!!!

I thought you were referring to the client!

It is the previous accountants who are investigating and reporting back?????

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27th Apr 2012 16:55


Yes Shirley it is the previous Accountants who are investigating and reporting back.


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