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Incorrect VAT returns

How many years to go back

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A sole trader has asked us to set up a limited company, register for VAT etc.

They were previously using the flat rate scheme and I have noticed they should have used the % for a limited cost trader and not the industry %.  The client has agreed to correct. I am concerned they have also applied this incorrect rate to net sales instead of gross sales so this may impact periods prior to April 2017.

1) Does anyone know how many years they need to go back?

2) Do they have to transfer the VAT number to the limited company or can the company submit a new VAT registration? 

I need to decide whether to do this myself or outsource as have a lot going on personally and professionally so any pointers welcome.

 Thanks 

Replies (19)

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By doubletrouble
14th Jan 2022 21:01

I always thought you could go back 4 years to correct errors, although may be wrong.
I tried to transfer a clients sole trader VAT number to the newly formed Ltd Co back in June and have had a nightmare trying to get it sorted, in the end had to cancel the transfer and HMRC agreed to treat it as a new registration, was told it should be sorted in the next couple of weeks but if I had stuck to the transfer they admitted it could take up to another 6 months.
So I would say deregister the sole trader and start a new registration for the Ltd.
Good luck!

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Replying to doubletrouble:
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By SXGuy
15th Jan 2022 10:40

What nightmare did you have? I've recently done one via paper and according to notes any vat prior to hmrc confirming is treated as new Co plus any old returns so the way I saw it was why does it matter if it takes 6 months

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By Paul Crowley
14th Jan 2022 22:03

I would definitely deregister and let company have a new number
4 years going back is normal if this is just routine error, not deliberate

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By Hugo Fair
14th Jan 2022 22:31

Is the sole trader your client (existing or prospective)?
Or is it only the limited company that could become your client?

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Replying to Hugo Fair:
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By Matrix
14th Jan 2022 22:56

The limited company only. I may be asked to assist with the sole trader (as there will be income tax implications too). Why do you ask?

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Replying to Matrix:
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By Hugo Fair
14th Jan 2022 23:22

Well legal responsibilities is another of my less-strong suits ... but I was wondering why you'd be involved in helping to sort out historical problems with the sole trader (if not your client)?

And, as per Jason's point, I would assume you'd prefer to start with the company having a clean bill of health (no potential liabilities).

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Replying to Hugo Fair:
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By Matrix
14th Jan 2022 23:40

Once I identified the error I wouldn’t have taken on the client if they hadn’t agreed to rectify. This post is to determine if I need to refer to a VAT specialist to write to HMRC or not.

Per 2), as it seems possible then will definitely apply for new VAT number then.

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Replying to Hugo Fair:
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By Matrix
15th Jan 2022 08:31

Hugo Fair wrote:

Well legal responsibilities is another of my less-strong suits

I believe an NCA report would be required whether you got involved or not. I am charging for looking into it so the sole trader is my client for that purpose if that helps.

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Replying to Matrix:
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By paulwakefield1
15th Jan 2022 09:12

Not convinced an SAR is required if the error was innocent/incompetent and he is going to resolve it now he has been made aware of it. If you do make an SAR, this would imply you suspect it was deliberate and potentially opens up the VAT window beyond 4 years. (Very happy to be corrected by David Winch).

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Replying to paulwakefield1:
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By Matrix
15th Jan 2022 09:26

Sorry I meant that if I did not get involved then the report may be required.

I didn’t understand why Hugo would do nothing.

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Replying to Matrix:
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By Hugo Fair
15th Jan 2022 11:19

FWIW I didn't say I would "do nothing". My question was "why you'd be involved in helping to sort out historical problems with the sole trader (if not your client)?" Note the 'involved in helping to sort out' bit.

And I don't see your response of "I wouldn’t have taken on the client if they hadn’t agreed to rectify" as being in conflict with my question.

My 'point' as per Paul's later response is that if you're satisfied the client has agreed to rectify (as a sole trader), then you don't have to file a SAR ... and if you only take on the Ltd company as a client - even though you're not helping to resolve the sole trader historical issues (which you seem to have found complex) - then you have an unencumbered new client (with the recommended new VAT registration).

It was just a thought - not a recommendation!

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Jason Croke
By Jason Croke
14th Jan 2022 22:44

As others have already posted, it's 4 years. Only can go back further if suspected fraud.

I usually don't transfer the VAT number as that transfers the VAT liability to the NewCo.

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By Matrix
14th Jan 2022 23:19

Thanks all.

So if the current period is an annual period ending on 31 March 2022, then my client corrects the returns going back to 1 April 2017?

I think they can apply to leave the FRS during the current (annual) accounting period ending 31 March 2022, so can apply standard VAT accounting from 1 April 2021?

And if the error is less than £10k then it can be included on this return? An accounting adjustment is made for the same amount and included on the income tax return for the same period.

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Replying to Matrix:
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By lionofludesch
15th Jan 2022 11:16

Matrix wrote:

Thanks all.

I think they can apply to leave the FRS during the current (annual) accounting period ending 31 March 2022, so can apply standard VAT accounting from 1 April 2021?

Apply to leave ?

I thought the sole rader was ceasing to trade.

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Replying to lionofludesch:
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By Matrix
15th Jan 2022 11:33

Yes but I don’t see why they can’t apply to leave the FRS. Or do you think a VAT deregistration at or before the end of the period changes the application to leave? The application would predate the deregistration.

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Replying to Matrix:
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By lionofludesch
15th Jan 2022 11:42

Fair enough - I missed the point you were making.

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By lionofludesch
15th Jan 2022 11:14

There's absolutely no obligation on the company to take on the VAT registration of the old business, that's for sure.

Don't complete form VAT 68. Job done.

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ALISK
By atleastisoundknowledgable...
17th Jan 2022 12:14

I would always recommend starting again with a new number, unless there was a major reason not to.

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Replying to atleastisoundknowledgable...:
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By Matrix
17th Jan 2022 14:31

Thanks ALISK.

If the transfer of the business was, say, 1 Feb, then do both businesses have to be VAT registered on this date for it to be TOGC. So register the company from 1 Feb but do not deregister the sole trade any earlier than 1 Feb? Thanks

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