Hello - I have been using the vat cash accounting scheme for a client - they are under the threshold for using the scheme, but I found out whilst preparing their company accounts that some of their larger invoices raised are in fact raised in advance for work to be carried out over the next 6 months or so. It has then occurred to me that, as I had not realised that this was the case, they have been included within the calculations for cash vat accounting each quarter, when in fact the vat should have been paid straight over in the quarter when the invoice was raised. This only happens once per year in any big way. Approx £14k of vat should have been paid over in the last vat quarter and will now have to be included within this next vat quarter. My thoughts are to write to HMRC and explain the error - I know that penalties can be raised for incorrect returns and of course I am worried about this, it seems that it would hopefully be classed as (at worst) careless, with unprompted disclosure @ 15%. Does anyone out there know how likely a fine is to be imposed? Any experience with this would be gratefully received.
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Unprompted disclosure
When your disclosure is unprompted, with a clear explanation, and accurate re-calculation of the affected Returns, you should expect a high reduction in the penalty. In some cases I have seen penalties reduced to zero.
Not my experience
When your disclosure is unprompted, with a clear explanation, and accurate re-calculation of the affected Returns, you should expect a high reduction in the penalty. In some cases I have seen penalties reduced to zero.
You must have been very fortunate if this has been your experience. I can think of several examples of this, including some that were appealed, and have never known the scoundrels to reduce or dismiss penalties other than the odd £100 for late CIS returns. I hasten to add that I am not talking about penalties incurred because of my errors!
I'm puzzled
I may have missed a special circumstance but surely, under cash accounting, you only account for VAT when payment is received, regardless of the tax point. If I've missed something I'd be grateful if you could point me at the notice applying.
Edit - re-reading, are you saying that the incidence of invoicing actually puts them over the CA threshold, if so, ignore me!
@paul, when you use the cash vat scheme, my understanding is that it can only be used for services which are NOT invoiced in advance, so unfortunately these invoices are for services which span over 4 to 6 months, so, should have been accounted for, vat wise in the month of tax point. If I have got , this wrong, I would be very happy indeed as would have been worrying over nothing!,,
Not to give you false hope
But I thought so long as your invoices weren't more than 6m in advance you were ok to be in the scheme.
And even then, I thought you just had to account for those transactions on the normal basis, but could still stay in the scheme for the remainder of the transactions.
Can anyone C/D?
6 month payment terms and invoices in advance
My understanding is that where an invoice is issued with payment terms in excess of 6 months then that invoice must be accounted for in the VAT quarter when the invoice was issued. Like wise where an invoice is raised in advance.
All other transactions are accounted for on the normal cash basis.
As you have missed £14K of VAT you cannot just correct it on the next return as it is greater than the £10K limit. You have to write to the corrections unit and from the one dealing I have had with them you may well have a 12 month issue on your hand.
@ Pete, I hope I haven't confused people here, the invoice is raised, May or may not be paid for in the quarter but the invoice itself spans delivery of service over a 6 mth window
Therefore it is an invoice in advance
I assume that makes it an invoice in advance and should be accounted for in the quarter it was raised.
I only referred to the payment terms as that is another example of when an invoice should be accounted for "outside" of the cash accounting rules.
Is this a stupid question?
Can this not be invoiced on a monthly basis rather than 6 months in advance?
@ jackie, the client invoices local authorities and they have to invoice 6 months in advance, so they pay up front for services they will receive over the following months , I don't think they have any choice in the matter
Well I never
Hands up - this in advance or < 6 months due date passed me by. (section 2.7 of notice 731).
Thanks all.