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Filing Gross Accounts Pending VAT Registration

Is it technically correct to file accounts containing gross figures pending VAT registration?

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Client company exceeded VAT threshold in draft accounts of 2018, but unresponsive director has failed to respond to us or VAT register. Until today, that is, because Companies House are now threatening prosecution.

In the light of which, would it be technically correct if we were to file at Cos House our draft FRS105 accounts containing gross figures? Until such time as the client registers for VAT, whereupon those gross accounts could be replaced by net of VAT accounts? If such course of action is correct and legal, then that would avoid any potential charge of our having delayed submission and thereby caused Companies House to proceed with its prosecution.  

The alternatives are:

(i) File net of VAT accounts in anticipation of the client's impending VAT registration. I'm uncomfortable with that, not least because I'm not convinced the director will ever register; also because input VAT is impossible to quantify at this stage; and, finally, I would much prefer to overstate rather than understate profits.

(ii) Do nothing, but be laid open to a possible charge from the client of having failed to halt proceedings by lodging accounts (albeit containing gross figures) at Companies House.   

So there it is. Would filing the draft FRS105 accounts, which contain gross figures, at Cos House be technically correct for the time being? 

 

 

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Replying to bernard michael:
RLI
By lionofludesch
30th Mar 2021 14:26

bernard michael wrote:

You can't file net of VAT figures as the client isn't VAT registered

Why's that ?

What if the fella accepted his obligation to register ?

Thanks (1)
Replying to lionofludesch:
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By bernard michael
30th Mar 2021 14:35

lionofludesch wrote:

bernard michael wrote:

You can't file net of VAT figures as the client isn't VAT registered

Why's that ?

What if the fella accepted his obligation to register ?

You can't account for what should have been when it isn't . All the figures would be understated and if VAT registration doesn't take place or is dated after the accounts date HMRC will go ************** !!

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Replying to lionofludesch:
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By bernard michael
30th Mar 2021 14:36

lionofludesch wrote:

bernard michael wrote:

You can't file net of VAT figures as the client isn't VAT registered

Why's that ?

What if the fella accepted his obligation to register ?

You can't account for what should have been when it isn't . All the figures would be understated and if VAT registration doesn't take place or is dated after the accounts date HMRC will go ************** !! and you'll be in the firing line

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Replying to bernard michael:
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By paulwakefield1
30th Mar 2021 14:44

However you can make a provision for the VAT liability less any recoveries. Although getting to the figures in the circumstances may be more than a little challenging.

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Replying to bernard michael:
RLI
By lionofludesch
30th Mar 2021 14:48

bernard michael wrote:

lionofludesch wrote:

bernard michael wrote:

You can't file net of VAT figures as the client isn't VAT registered

Why's that ?

What if the fella accepted his obligation to register ?

You can't account for what should have been when it isn't . All the figures would be understated and if VAT registration doesn't take place or is dated after the accounts date HMRC will go ************** !! and you'll be in the firing line

The company's assets are overstated. This money is owed to HMRC.

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Replying to lionofludesch:
A Putey FACA
By Arthur Putey
30th Mar 2021 16:01

Do we know this? It might be the case they went over the threshold temporarily and they might accept this. ISIHAC doesn't know (offficially) either because he hasn't seen the books for the following year. And remember, the threshold test is a rolling 12 month period not the financial year. Should he just guess a figure if he can't work it out from the company records?

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Replying to Arthur Putey:
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By paulwakefield1
30th Mar 2021 16:25

Practically any set of accounts drafted in the circumstances is going to be wrong and not show a T&F view (except by amazing guesswork and luck). If the director won't provide info for a provision, should just walk. Shouldn't be associated with accounts which are very probably materially wrong and there just is not enough data to prove that is not the case or for a reasonable provision estimate.

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Replying to paulwakefield1:
RLI
By lionofludesch
30th Mar 2021 16:55

paulwakefield1 wrote:

Practically any set of accounts drafted in the circumstances is going to be wrong and not show a T&F view (except by amazing guesswork and luck). If the director won't provide info for a provision, should just walk. Shouldn't be associated with accounts which are very probably materially wrong and there just is not enough data to prove that is not the case or for a reasonable provision estimate.

True - but that doesn't mean you should give in.

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Replying to paulwakefield1:
A Putey FACA
By Arthur Putey
31st Mar 2021 13:10

Sounds like the company is in the shonet anyway so I doubt this will give anyone a distorted viw of T&F.

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Replying to Arthur Putey:
RLI
By lionofludesch
30th Mar 2021 16:52

Arthur Putey wrote:

Do we know this? It might be the case they went over the threshold temporarily and they might accept this. ISIHAC doesn't know (offficially) either because he hasn't seen the books for the following year. And remember, the threshold test is a rolling 12 month period not the financial year. Should he just guess a figure if he can't work it out from the company records?

Bless me, Arthur, three years on ? We should know if it's temporary by now !!

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Replying to lionofludesch:
blue sheep
By Nigel Henshaw
30th Mar 2021 17:20

We don't though do we as we don't have the records, thats the point.

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Replying to NH:
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By I'msorryIhaven'taclue
30th Mar 2021 17:30

I'm afraid so. The Sales Daybook, such as it is, is gappy; and with some invoices entered to the wrong month(s). I've been asking for sales invoices, or a proper schedule of them, dated accurately, for a few years.

So the draft accounts just have the cut-offs matched for sales invoices and bank receipts; the middle's a black hole. Ditto purchases.

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Replying to NH:
RLI
By lionofludesch
30th Mar 2021 18:08

NH wrote:

We don't though do we as we don't have the records, thats the point.

The onus is on the company to show that the increase in turnover is temporary.

They can't.

They are liable to registration.

If that's not the case, we're just encouraging carp records.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
31st Mar 2021 12:32

They could, if they wanted, decide the matter one way or another; but that would involve producing an accurate SDB for the year in question, and for the year(s) following. But they've left it too late.

This morning's news is that the client has been in contact with Cos House, spun them a yarn or two but was refused any further extension, filed some overdue documents all by himself himself, and is presently suggesting I file not only the accounts that are the subject matter of this thread (he doesn't know about net or gross options), but also the following year's accounts based on some figures he's pulled from the company's bank statements, on account of there being no books written up since. (Maybe he's seen the QB Online advert, and believed it!).

Jeezalu, the plot thickens. What's the betting he files some nonsense accounts himself now that he's figured out how to access Cos House Online?

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Replying to I'msorryIhaven'taclue:
A Putey FACA
By Arthur Putey
31st Mar 2021 13:14

Whatever you do for the year in question, I would decline to act for subsequent years.

[Edit: has the client accepted that he will get hit with CH penalties, and later, HMRC penalties?]

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Replying to Arthur Putey:
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By I'msorryIhaven'taclue
31st Mar 2021 13:37

I wish I could walk now, Arthur. Going through the motions is time-consuming, not to mention exhausting. But I'm conscious that a charge of negligence can arise not only from an (erroneous or similar) act but also from an omission. Hence my putting the room in order before I vacate.

Some poor fish is going to get this company as a new client (quite possibly tomorrow, on 1st April!) The director is smooth and plausible, but over the years has consistently over-promised and under-delivered, underpaid, and under-performed his side of the bargain. Sound familiar?

Fortunately this client company stopped paying its monthly amounts in 2019, which I suppose relieves us of any contractual obligation to produce subsequent accounts. But it highlights the flaw in collecting monthly instalments (as opposed to receiving subscriptions, which I gather are a different kettle of fish) since that can compromise an accountant's position; impair his ability to resign, even. All very well sending a refund in an attempt to escape our side of the contractual obligation, but as you have pointed out the consequential damages in penalties alone can be huge. A moot point in this particular case, thankfully.

I digressed. I haven't discussed penalties with the client, although I suspect he's more worried about the criminal prosecution side. I imagine he expected Cos House to wind up the company; I dug around a bit and found a company belonging to his ex-wife which stopped submitting accounts / annual return and was simply struck-off by the Registrar. And, by perspective, The company's VAT liability has the potential to be one sixth of its turnover these past few years.

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Replying to I'msorryIhaven'taclue:
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By bernard michael
31st Mar 2021 13:13

I'msorryIhaven'taclue wrote:

They could, if they wanted, decide the matter one way or another; but that would involve producing an accurate SDB for the year in question, and for the year(s) following. But they've left it too late.

This morning's news is that the client has been in contact with Cos House, spun them a yarn or two but was refused any further extension, filed some overdue documents all by himself himself, and is presently suggesting I file not only the accounts that are the subject matter of this thread (he doesn't know about net or gross options), but also the following year's accounts based on some figures he's pulled from the company's bank statements, on account of there being no books written up since. (Maybe he's seen the QB Online advert, and believed it!).

Jeezalu, the plot thickens. What's the betting he files some nonsense accounts himself now that he's figured out how to access Cos House Online?

The answer to the client is NO, No,No alas Mrs Thatcher
If he goes ahead and files not your problem

Thanks (1)
Replying to lionofludesch:
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By bernard michael
31st Mar 2021 12:19

Even so until he did you wouldn't know from what date HMRC will start the registration

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Replying to bernard michael:
RLI
By lionofludesch
31st Mar 2021 14:15

bernard michael wrote:

Even so until he did you wouldn't know from what date HMRC will start the registration

The date the trader (or his agent) enters on form VAT1.

They may dispute it later but, until they do, that's the date you work with.

I'm not seeing the difficulties that you are seeing.

Thanks (1)
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By raju m
31st Mar 2021 10:54

What has happened on the Corporation tax situation??????????
Any HMRC assessments?? Any appeals?? Any payments??
You should avoid your firms name going into the HMRC bad book.
Good luck

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Replying to raju m:
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By I'msorryIhaven'taclue
31st Mar 2021 12:55

Thank you Raju,

I'm only filing at Cos House, but it does beg the question as to why HMRC appear to be asleep on this one. I'd put it down to the fact that HMRC had already blocked a proposed strike-off instigated by Cos House - I'd put that down to the fact that the company continued to submit RTI PAYE returns - and then lockdown putting matters on hold a year ago.

But that's good advice, and it's just prompted me to check. HMRC "lost" a batch of our CT client companies from our agents' list (twice, actually) a year or two ago, and it seems we never had this client company reinstated. Perhaps because the company had ceased paying its monthly subscription; perhaps because it was unresponsive; no matter. But that explains why there's been a dearth of HMRC correspondence.

The director is still registered as a SA client; but HMRC online no longer has us listed as an agent for the company. Which I suppose bodes well. Given that I'm planning on taking others' advice by walking ASAP I might just let sleeping dogs lie so far as that matter is concerned.

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By bernard michael
31st Mar 2021 12:21

In my lengthy career I've seen a lot of CH threatening letters but not a single case of prosecution

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Replying to bernard michael:
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By I'msorryIhaven'taclue
31st Mar 2021 12:42

That's interesting, thank you Bernard.

In the light of that, and for that matter all the other valuable contributions in this thread for which I am most grateful, I'm going to go to Cos House online now and file these draft accounts before the client - who this morning has been on to Companies House, recovered his online access, filed a Confirmation Document all by himself, and is presently touting the idea of filing accounts for the subsequent AP cobbled together from nonsense figures - compounds the matter by beating me to it / withdrawing his approval / locking me out.

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Replying to I'msorryIhaven'taclue:
A Putey FACA
By Arthur Putey
31st Mar 2021 13:16

I hope you mean that you will file accounts that the client has signed off under your caveats.

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Replying to Arthur Putey:
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By I'msorryIhaven'taclue
31st Mar 2021 13:42

Thanks Arthur, and duly noted. I'm working on that presently.

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Replying to I'msorryIhaven'taclue:
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By bernard michael
31st Mar 2021 13:18

I'msorryIhaven'taclue wrote:

That's interesting, thank you Bernard.

In the light of that, and for that matter all the other valuable contributions in this thread for which I am most grateful, I'm going to go to Cos House online now and file these draft accounts before the client - who this morning has been on to Companies House, recovered his online access, filed a Confirmation Document all by himself, and is presently touting the idea of filing accounts for the subsequent AP cobbled together from nonsense figures - compounds the matter by beating me to it / withdrawing his approval / locking me out.

I may have missed the answer somewhere but has the client agreed/signed the accounts. If he hasn't do not file them as you do not have the authority

If he takes action from here on it's his responsibility and not his practicing certificate/reputation at risk

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Replying to bernard michael:
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By I'msorryIhaven'taclue
31st Mar 2021 13:56

Thanks Bernard,

FRS 105 Accounts that are agreed / signed do not contain a note re: potential liability to VAT registration. I'm on to that presently.

Fortunately, these (ye 31/3/18) accounts that are the subject matter of this thread have diminished in their importance since late yesterday, I gained sight of Cos House notice letter to the director: it seems the prosecution threatened is not exclusively dependent on their submission, but also on the preparation and submission of the following year's accounts (and, reading between the lines, upon those for ye 31/3/20 as well). All to be submitted before this holiday weekend!

So my initial fear that my action or indeed inaction in filing the 2018 accounts would absolutely determine the outcome and consequences for this director has been somewhat diluted. Put simply, he's sunk anyway. (Unless, I suppose, he himself is able to cobble together two further sets of accounts before this holiday weekend).

Thanks (0)
blue sheep
By Nigel Henshaw
31st Mar 2021 13:14

I think this post illustrates how far we as professionals sometime feel we need to go in order to protect the client, when in actual fact what we should probably do is just walk away and leave them to their own devices.

In this case (only IMO without knowing the full facts) it seems to me that you should have simply prepared the accounts as you saw fit (gross based on the facts), sent them to the Director with a disengagement letter explaining clearly the relevant issues and telling them that they need to instruct anther accountant if they wish to continue.

No one could lay any blame to you for doing that, at the moment you are doing work for free and the client clearly couldn't care less. I do however understand your persistence as it does not feel right to leave it this way and you might well have a good relationship with them for a number of years, but the point is that this is not your responsibility.

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Replying to NH:
A Putey FACA
By Arthur Putey
31st Mar 2021 13:17

Well put

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Replying to NH:
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By I'msorryIhaven'taclue
31st Mar 2021 15:19

Hi NH,

Spot on, except that I'm even more conscious of protecting my own derriere on this one, rather than offer protection to what is an undeserving PITA client. This is someone who will cry foul and try to bite my *rse when he's disengaged. We haven't quite reached the tantrums stage yet - still going through the tears stage - but I'm battening down the hatches in readiness.

Charming fellow, always opens the conversation with "don't worry about your fees..." but over the years I've learnt to take him with a pinch of salt. And now it's time for me to bale from his sinking ship. Don't misunderstand - this isn't emotive like taking your pet dog to the vet to be put down; more akin to watching your mother in law get hit by a truck!

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