Share this content

VAT Not been charged

Business has not charged VAT despite being registered

Didn't find your answer?

Hi, a friend has approached me as he has been contacted by HMRC due to his limited company not submitting any VAT returns. One of the directors registered them for VAT without notifying the others (they have no business experience and he clearly didn't understand the implications). They have been trading for around a year now and have not charged VAT to any customers. My assumption is that they have to charge VAT retrospectively. However this has been complicated further as they are selling medical supplies which I believe should be zero rated. They only sell the one product which would mean they should never have been VAT registered in the first place. Any suggestions on the best way to proceed? If they do charge VAT they cannot afford to pay. They are yet to submit their first set of accounts.

Replies (14)

Please login or register to join the discussion.

avatar
By David Ex
21st Oct 2021 23:21

Chicken George wrote:

a friend has approached me …

Any suggestions on the best way to proceed?

My suggestion is don’t get involved in the tax affairs of friends - even if you are qualified (and insured and authorised, etc., etc.), which you appear not to be.

Your friend needs to speak to their accountants/tax advisers as a matter of urgency.

Thanks (0)
RLI
By lionofludesch
21st Oct 2021 23:51

Zero rated?

What's the problem again ?

Thanks (0)
Replying to lionofludesch:
avatar
By Paul Crowley
22nd Oct 2021 00:02

+1
Zero rated and can claim input tax
If so a good accident

Thanks (3)
avatar
By Paul Crowley
22nd Oct 2021 00:04

Not his company if there are random directors doing things that they do not understand

Thanks (0)
avatar
By Calculatorboy
22nd Oct 2021 00:04

Maybe "one of the directors" sort of knew what he was doing?...a little knowledge etc

Thanks (0)
avatar
By The Dullard
22nd Oct 2021 01:45

Before anybody pats themselves on the backs too much for solving the OPs dilemma, "medical supplies" are only zero-rated, rather than exempt, in VERY specific circumstances. It seems to me that this one is a case of a man with rickets trying to catch a pig in a dark alley.

Thanks (4)
Replying to The Dullard:
avatar
By Paul Crowley
22nd Oct 2021 03:28

So exempt is still not a good thing?

Thanks (0)
Replying to Paul Crowley:
avatar
By VATs-enough
22nd Oct 2021 07:21

Exempt - ok

Zero rate - even better

Standard Rate (which these supplies possibly are) - up [***] creek

EDIT
But might be a way to provide a paddle depending on the wording of contracts/T&Cs, and whether the clients customers are able to claim VAT....

Thanks (0)
avatar
By SXGuy
22nd Oct 2021 07:43

So your client sells zero rated supplies but needs to charge vat retrospectively? How does that make sense?

I think what your client needs to do is submit vat returns showing those zero rated supplies.

Further, the fact they are zero rated doesn't automatically remove the need to register for vat, don't confuse zero with out of scope.

Thanks (1)
Jason Croke
By Jason Croke
22nd Oct 2021 07:59

Apart from PPE during the covid crisis (which was zero rated temporarily for 6 months last year), medical supplies are generally standard rated.

A lot of assumptions in your post (some Director registered for VAT without telling anyone, sales might be standard or zero rated, don't know what these supplies are, nobody has any business experience... which I read as nobody has paid for any accounting advice and they're just winging it).

If the sales are zero rated, those sales count towards the VAT registration threshold and so VAT registration would still be required if over £85k of sales. File the returns, no output tax, reclaim input tax, job done.

If the sales are standard rated, then VAT is owed to HMRC from the date of registration, end of. You cannot withdraw a voluntary registration even if done so in error). Nor can you with draw a compulsory registration.

You state they cannot afford to pay, how so? The liability could be £1.50 or £150k. Without quantifying the liability, are you really saying they cannot afford it (without knowing what "it" is) or are you saying they don't want to pay for the error they have potentially made?

I doubt the medical supplies would be exempt as "medical supplies" are goods, not services.

Thanks (2)
Replying to Jason Croke:
avatar
By Chicken George
22nd Oct 2021 09:12

They have been working under the assumption their sales are zero rates but I’m not convinced. They sell a product initially with an ongoing service. I have not seen their sales yet as they have not recorded them properly. The VAT owed would be several thousand which they could likely pay it off over time which in my experience HMRC may allow.

Thanks (0)
Replying to Chicken George:
Jason Croke
By Jason Croke
22nd Oct 2021 10:34

Assuming you are an Accountant/book keeper, do you really want to take this client on?

If they've not even got their sales recorded as yet, despite trading for a year and being VAT registered and they've already clocked up a significant VAT liability, nobody knows who is doing what, keeping this client compliant will be liking herding cats.

Thanks (3)
avatar
By Truthsayer
22nd Oct 2021 09:15

'Any suggestions on the best way to proceed?'

Yes. Your 'friend' should hire an accountant immediately. The company should have done this much earlier, and you would then not be in this pickle.

Thanks (3)
avatar
By Leywood
22nd Oct 2021 16:59

Dont work for friends. Dont get involved. It will not end well.

Thanks (0)
Share this content