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VAT inspection

VAT inspection

I have a client who in the past two years (8 quarters ) reported the output tax and paid the VAT to HMRC, however,  they are estimated figure (not far from the actual) so did not issue the VAT invoice to customers and customers have not paid in the past two years, as the prices of providing the services have not been formally agreed.  

However, they are due for a VAT inspection, need to send the invoices to the  customer, what is the best action?

1)      Issue the invoices backdated for 8 quarters as the date show relevant period, these invoices matched the VAT return figures;

2)      Issue the invoices as above ,add then do a credit note to cancel all previous invoice and raise one total bill (including 8 quarters figure at the correct invoices ) as at today’s date. However, this method will result their customer to make a large VAT claim this quarter, may trigger a VAT inspection for them? 

The HMRC guideline regarding this states:

VR6700 - Late claims for input tax: Time limits general

Regulation 29 of the VAT Regulations 1995 provides that, normally, input tax must be deducted in the return for the accounting period in which the entitlement to deduct it arose.

The entitlement to make a claim to deduct input tax arises in the accounting period in which the taxable person has both incurred the input tax and received the documentary evidence, that is to say the VAT invoice, to support its deduction.

From 1 April 2009, the taxable person has four years from the due date of the return for the accounting period in which the entitlement to make the claim to deduct arose in which to make a late claim for input tax - the transitional arrangements for the change from three years to four is set out at VR6800.

For example,

Ali Ltd is accounting for VAT in accounting periods ending 31 March, 30 June, 30 September and 31 December. It incurs input tax on the purchase of a crate of widgets on 25 January 2007. It gets the VAT invoice on 21 April 2007. The entitlement to deduct the input tax has arisen in the accounting period ending on 30 June 2007 and the due date for the return for that accounting period is 31 July 2007. Thus Ali Ltd has until 31 July 2011 to claim that input tax.

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04th Mar 2016 07:41

If no invoices have been raised and no payments have been received no tax point has yet arisen, so your client has overpaid.

Your client can only issue invoices for amounts that customers have agreed to pay, and when they have agreed to pay it. Your idea that he might issue invoices for the sole purpose of the VAT inspection, regardless of what the position is between your client and his customers, is misconceived.

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By pacta
04th Mar 2016 07:57

Hold on

Have NO payments been received on account of this work? 

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avatar
04th Mar 2016 08:12

And why..
... are you quoting input tax guidance when this seems to be about output tax?

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04th Mar 2016 08:14

It would seem so. The OP says "customers have not paid in the past two years".

Very odd I know. But we can only advise on the basis of what the OP says the position is.

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By pacta
04th Mar 2016 08:33

Highly unusual

johngroganjga wrote:
It would seem so. The OP says "customers have not paid in the past two years". Very odd I know. But we can only advise on the basis of what the OP says the position is.

That would be a highly unusual situation. Perhaps payments to meet "expenses" have been made?

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By Ruddles
04th Mar 2016 08:24

Tax points

Why do you think no tax point has arisen, John? You may be right but yet again insufficient information to confirm one way or the other.

 

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04th Mar 2016 08:37

VAT inspection

If the nature of the services being delivered means that no tax point has occurred, then there is no necessity to issue an invoice to the customer.

I am also concerned that your client has been working for two years without payment - perhaps this issue should be resolved first! Until the value of services are agreed I see little point in issuing an invoice.

But, in respect of the VAT inspection, your best option is to outline the situation to the Officer.

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avatar
04th Mar 2016 08:58

He has not only not been paid...
...but has been paying uncollected VAT to HMRC. based on who knows what?

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By Ruddles
04th Mar 2016 09:15

Les, you've (sort of) answered my question to John

The important word being the very first one in your post.

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