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Fraud or a quirk of HMRC?

VAT claimed on purchased item but not paid on Sale

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A client has reached the VAT Threshold so needs to be registered.

However, the large sale that pushed them over the limit has an associated purchased that has not yet been invoiced to the client nor been paid for.

If they register now under the Cash Accounting Scheme can they claim the VAT back on the purchase when it is paid for? Would this be fraud or just a quirk of the scheme?

Replies (31)

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By WhichTyler
16th Sep 2020 08:14

? Under cash accounting you recover the vat when the purchase is paid for.

Please can you clarify what you mean?

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Quack
By Constantly Confused
16th Sep 2020 08:18

I'm confused, what part of what you think will happen is the quirk?

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By Paul Crowley
16th Sep 2020 08:35

Start and finish of cash accounting require sorting out.
Debtors and creditors need to be dealt with correctly.

You have not said what the purchase was, but cash accounting does not mean claiming VAT that would otherwise not be reclaimed under normal rules.

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Psycho
By Wilson Philips
16th Sep 2020 08:43

No quirk.

Cash Accounting determines when you account for VAT, it doesn’t change the tax point. The VAT is pre-registration VAT and since the goods have been sold it is not claimable.

Thanks (3)
RLI
By lionofludesch
16th Sep 2020 08:54

How large ?

Large enough to be counted as stock on deregistration ?

There are a lot of questions to be asked before the situation is clear.

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By mjshort
16th Sep 2020 10:06

By Wilson Philips
The VAT is pre-registration VAT and since the goods have been sold it is not claimable.

HMRC- “If you pay for the goods or services after you have registered for VAT, claim the VAT, as though it was input tax, in the tax period in which you pay for them”.

By lionofludesch
Large enough to be counted as stock on deregistration ?-

Its gone- there is no Stock!

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Replying to mjshort:
Psycho
By Wilson Philips
16th Sep 2020 10:14

mjshort wrote:

HMRC- “If you pay for the goods or services after you have registered for VAT, claim the VAT, as though it was input tax, in the tax period in which you pay for them”.


I'd like to see the context - where did you see those words?
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Replying to Wilson Philips:
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By Paul Crowley
16th Sep 2020 14:21

Same here
If true then I have got it wrong every time.
If you can claim VAT on the cost of an item sold prior to registration, I want to know.

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By Wycher
16th Sep 2020 10:16

I'm with Wilson if the purchase relates directly to a sale which did not have vat on as before registration then it does not matter when it is paid you cannot claim the VAT back.

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By I'msorryIhaven'taclue
16th Sep 2020 10:21

I can see why the OP is confused by the ambiguity within the gov.uk/vat pages.

At https://www.gov.uk/vat-record-keeping/time-of-supply-or-tax-point under "Time of supply or tax point" we are told that in the situation of a VAT invoice being issued (within 14 days of the supply having taken place) then the Tax Point is indeed the "Date of invoice". (ie the second situation down on that list.)

And if the above is the General Rule relating to "Time of supply or tax point" then underneath on that page are the Exceptions to those rules (and I quote):
"If you use the VAT Cash Accounting Scheme, the tax point is always the date the payment is received."

All of which appears contradictory to the pre-registration purchases guidance relating to stock.

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By mjshort
16th Sep 2020 10:28

By Wilson Phillips
I'd like to see the context - where did you see those words?

https://www.gov.uk/guidance/vat-cash-accounting-scheme-notice-731

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Replying to mjshort:
Psycho
By Wilson Philips
16th Sep 2020 10:41

Thanks. As I suspected, your quote was taken out of context. As the Notice says, you may recover input VAT on certain goods etc purchased before registration. You need to read the rules in Notice 700 which sets out the conditions for such recovery.

As is so often the case, the dumbed-down guidance on GOV.UK (referred to above) is wrong - Cash Accounting does not change the tax point.

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By mjshort
16th Sep 2020 10:33

By I'msorryIhaven'taclue

Thank you for the link. Underneath the rules on "Time of supply or tax point"
There is
"Exceptions
If you use the VAT Cash Accounting Scheme, the tax point is always the date the payment is received."

Please note from my post that THERE IS NO STOCK, its gone!

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Replying to mjshort:
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By WhichTyler
16th Sep 2020 12:46

But youare talking about a payment made, not received, aren't you?

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Replying to WhichTyler:
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By I'msorryIhaven'taclue
16th Sep 2020 13:56

Well my theme was picking up on the apparent anomalies within the various gov.uk VAT guides (the OP's quirks, if you will).

Let's apply the exception at https://www.gov.uk/vat-record-keeping/time-of-supply-or-tax-point to the OP's case viz:
"If you use the VAT Cash Accounting Scheme, the tax point is always the date the payment is received."

If you accept that verbatim, then if the client adopts cash accounting from the off then the tax point for the large sales invoice that pushed the client over the VAT registration threshold might or might not fall within the VAT registration period, depending upon when payment is received. [Issue #1]

You'd be excused for thinking that the converse could apply to purchase invoices. [Issue #2].

Thanks (0)
Replying to I'msorryIhaven'taclue:
RLI
By lionofludesch
16th Sep 2020 14:13

I'msorryIhaven'taclue wrote:

Well my theme was picking up on the apparent anomalies within the various gov.uk VAT guides (the OP's quirks, if you will).

Let's apply the exception at https://www.gov.uk/vat-record-keeping/time-of-supply-or-tax-point to the OP's case viz:
"If you use the VAT Cash Accounting Scheme, the tax point is always the date the payment is received."

If you accept that verbatim, then if the client adopts cash accounting from the off then the tax point for the large sales invoice that pushed the client over the VAT registration threshold might or might not fall within the VAT registration period, depending upon when payment is received. [Issue #1]

You'd be excused for thinking that the converse could apply to purchase invoices. [Issue #2].

Yes, but there are special rules when you join or leave the scheme. You can't get an invoice for goods, claim the VAT, go on cash accounting, pay the invoice and claim the VAT back again.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
16th Sep 2020 14:55

Agreed, but I think the potential quirk the OP had envisaged (under VAT cash accounting) was one whereby the tax point of the large sales invoice falls outside of the VAT registration period (let's suppose because it is settled quickly within 30 days) and thus no VAT element is involved; whereas the purchase invoice - when eventually it is issued by the supplier - might be settled late and so with its tax point falling within the VAT registration period (in which event, drawing upon the guidance in my link, it might be inferred that VAT inputs are reclaimable).

B*gger! My sentences are getting longer.

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Replying to I'msorryIhaven'taclue:
RLI
By lionofludesch
16th Sep 2020 14:57

I'msorryIhaven'taclue wrote:

Agreed, but I think the potential quirk the OP had envisaged (under VAT cash accounting) was one whereby the tax point of the large sales invoice falls outside of the VAT registration period (let's suppose because it is settled quickly within 30 days) and thus no VAT element is involved; whereas the purchase invoice - when eventually it is issued by the supplier - might be settled late and so with its tax point falling within the VAT registration period (in which event, drawing upon the guidance in my link, it might be inferred that VAT inputs are reclaimable).

B*gger! My sentences are getting longer.

But presumably the goods would be supplied before registration, leading to a VAT point before registration.

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Replying to lionofludesch:
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By I'msorryIhaven'taclue
16th Sep 2020 15:20

You'd think so, wouldn't you?

And yet gov.uk/VAT site on the link states a general rule under Time of supply or tax point whereby the tax point in our protagonist's case would be somewhere between the date of supply and 14 days later (or possibly earlier, in the case of advance payment). All good thus far, but it then goes on to inform us of the exception to the rule, viz: "If you use the VAT Cash Accounting Scheme, the tax point is always the date the payment is received" (Which sales receipts situation I labelled "Issue #1" earlier on, before making the mental leap that conversely purchase input payments must surely follow suit ["Issue #2]).

Thanks (0)
Replying to I'msorryIhaven'taclue:
Psycho
By Wilson Philips
16th Sep 2020 15:01

Ignore whatever the guidance says - it's wrong (at least as far as the reference to the tax point is concerned).

Back to basics:

The tax point is fixed for both supplier and customer. It is the date of supply of the (in this case) goods. It can be over-ridden by one of two means - an earlier payment or issue of VAT invoice within 14 days. And that is it. Cash Accounting has nothing to do with the tax point and merely shifts the time that you need to account for VAT.

Pre-registration input is claimable on goods obtained prior to registration and still held at registration. Tax points, Cash Accounting etc are all red herrings. The goods were obtained/sold prior to registration or they were not.

And those are my final words on the subject.

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Replying to Wilson Philips:
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By I'msorryIhaven'taclue
16th Sep 2020 15:27

Well I hear what you say and I quite agree with you. Except to the extent that if you believe the information on the gov link "If you use the VAT Cash Accounting Scheme, the tax point is always the date the payment is received" then that "Exception" ostensibly provides a third means by which a tax-point is capable of being over-ridden.

I know, I know... you've said it's not to be believed.

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Replying to I'msorryIhaven'taclue:
Psycho
By Wilson Philips
16th Sep 2020 15:41

OK, I thought I'd said my last words on the subject, but these are.

Take the situation where a supplier using normal VAT accounting supplies goods on 29 September and raises a VAT invoice on 5 October. Customer, on Cash Accounting, pays on 22 November. Bearing in mind that there can be one and only one, what would you say is the date of the tax point for this transaction?

I don't think there's any point in arguing about implications/inferences from the GOV.UK guidance. I think we are all agreed that it is mince but to the uninformed, the wrong conclusions may well be drawn.

However, as professional advisers we (and I include the OP) should know better than to rely on anything on that site. (Although, according to Mr Bryant, one probably shouldn't rely on anything that I say either.)

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Replying to Wilson Philips:
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By I'msorryIhaven'taclue
16th Sep 2020 17:03

Wilson Philips wrote:

Take the situation where a supplier using normal VAT accounting supplies goods on 29 September and raises a VAT invoice on 5 October. Customer, on Cash Accounting, pays on 22 November. Bearing in mind that there can be one and only one, what would you say is the date of the tax point for this transaction?


Assuming no opt out, 5th October. All good.

Except my link introduces the concept of a second tax point under its "Exceptions" paragraph, viz: "If you use the VAT Cash Accounting Scheme, the tax point is always the date the payment is received." So that if we were to reverse your example so that the supplier used the cash scheme then from his viewpoint the tax point would be 22nd November; whilst the purchaser, on the standard scheme, would regard 5th October as the tax point.

I know, I know... the gov pages are pants.

Thanks (0)
Replying to I'msorryIhaven'taclue:
RLI
By lionofludesch
16th Sep 2020 17:17

I'msorryIhaven'taclue wrote:

Wilson Philips wrote:

Take the situation where a supplier using normal VAT accounting supplies goods on 29 September and raises a VAT invoice on 5 October. Customer, on Cash Accounting, pays on 22 November. Bearing in mind that there can be one and only one, what would you say is the date of the tax point for this transaction?

Assuming no opt out, 5th October. All good.

Except my link introduces the concept of a second tax point under its "Exceptions" paragraph, viz: "If you use the VAT Cash Accounting Scheme, the tax point is always the date the payment is received." So that if we were to reverse your example so that the supplier used the cash scheme then from his viewpoint the tax point would be 22nd November; whilst the purchaser, on the standard scheme, would regard 5th October as the tax point.

I know, I know... the gov pages are pants.

It's clearly possible for a trader to have two tax points if the Government pages are to be believed.

1. Pre cash accounting, supply/invoice date
2. Post cash accounting, payment date.

Personally, I think folk are not looking deep enough into the guidance. That includes me, owing to disinterest. Cheating the system in this way doesn't appeal to me. It's asking for trouble.

Thanks (1)
Replying to I'msorryIhaven'taclue:
Psycho
By Wilson Philips
16th Sep 2020 17:21

Sigh ... why do I allow myself to get sucked back into this?

Tax points do not depend on one's viewpoint. The tax point is the tax point and it is the same for both supplier and customer, and it's timing depends on the facts. The suggestion that there might be a second tax point just underlines the error in the guidance.

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Replying to I'msorryIhaven'taclue:
Psycho
By Wilson Philips
16th Sep 2020 14:14

The problem is that you should not accept anything on GOV.UK verbatim.

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Replying to Wilson Philips:
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By I'msorryIhaven'taclue
16th Sep 2020 14:54

I guess people hear what they want to hear.

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Replying to Wilson Philips:
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By Paul Crowley
16th Sep 2020 15:11

Agree
They now display in a Janet & John style

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By Tax Dragon
16th Sep 2020 16:04

I'd like to throw Reg 57 of the 1995 VAT Regs (SI 1995/2518) into the ring.

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Replying to Tax Dragon:
RLI
By lionofludesch
16th Sep 2020 16:29

Tax Dragon wrote:

I'd like to throw Reg 57 of the 1995 VAT Regs (SI 1995/2518) into the ring.

No - you've already made a post today.

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Replying to lionofludesch:
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By Tax Dragon
16th Sep 2020 16:34

Good point. I retract the comment (and this one) and will get my throwing arm ready for tomorrow.

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