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VAT Threshold exceeded in two consecutive FYs

Do we register the client or push through the accounts as he has fallen below the threshold this FY

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We have have this clients that normally brings his company financial recorda once in a year for us to prepare his final accounts. In one of the financial years he exceeded the £85K threshold for the compulsory registration for VAT. We brought this to his attention and he advised it was a one off because of contract boom.

In the year following, he exceeded this threshold again and by a larger margin. I sopke to HMRC and they advised that I register the client backwards to start from first day of the previous financial year. 

The client fears that he may not be able to collect those VAT amounts if he re-invoiced his clients. Again he advises that the current year which ends in few weeks his T/O is less than the £85K band. What do we do at this point.

The VAT involved is over £45K. Would putting through the accounts trigger inquiry from the VAT team?

Can someone give a advise on the way forward.

hank you in anticipation of your kind suggestions..


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Out of my mind
By runningmate
02nd Dec 2019 20:02

Start by looking at the gross turnover month by month over the past 3 or 4 years to work out when the company first exceeded the VAT registration threshold. From that, work out the date from which the company should have been registered for VAT. Then advise the directors to instruct you to register the company for VAT from that date & warn them of the likely penalties.
Oh and get your fees up front.

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02nd Dec 2019 23:04

It sounds like you have dug yourself into a hole by not addressing this properly when it first reared its head. You should have insisted on registering the client last year, and refused to act further if he refused to do that. Now you must do what you should have done before, only backdated.

'Would putting through the accounts trigger inquiry from the VAT team?' That's the least of your worries, and not the point.

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By petersaxton
03rd Dec 2019 01:23

Advise him to see an experienced accountant.

Thanks (4)
By SWAccountant
03rd Dec 2019 14:07

I don't do a lot of VAT, but it is my understanding that you have to register when the turnover threshold is breached, even if it was temporary. Your application is accompanied with a request to be exempt along with supporting evidence that the breach was temporary.

You can't just ignore registration on the basis of the client asserting a temporary breach.

I'd suggest you speak to somebody with a better understanding of VAT rules, and check your PI. Your client's customers are under no obligation to pay him the VAT he didn't charge on your advice. HMRC will collect this from him, and he may turn to you.

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By fawltybasil2575
03rd Dec 2019 16:38

@ bridyn (OP).

Re the first occasion on which you ascertained that the taxable turnover had breached the registration limit, you say that:-

"We brought this to his attention and he advised it was a one off because of contract boom".

My major concern is, from YOUR own perspective, your comment that, after that first discovery, you (at least impliedly) took no proactive steps to ENSURE that your client either (i) registered for VAT or (ii) applied for exception from registration. It appears implicit in your question that, simply because you ACCEPTED his assurance that the future taxable turnover would be below the deregistration limit, you DECIDED that he did NOT NEED to take any action: it is that DECISION which (in intending no offence) I believe makes it essential that you seek guidance from an accountant more experienced in such matters and/or a VAT specialist.

Now, to be entirely fair, it does NOT automatically follow, from your not having taken the “proactive steps” referred to above, that you would be exposed to a PI claim if and when the client were minded to pursue such claim against you – whether such exposure arises depends on the terms of the engagement between you and your client, in effect probably how the Engagement Letter is worded in terms of the scope of your appointment.

I would respectfully disagree the advice above that you request the client to obtain guidance HIMSELF from a VAT specialist. Doing so would result in the specialist’s acting for the CLIENT, whereas I consider that the specialist should act for YOU personally (for hopefully self-evident reasons).

One would need materially more detail of the circumstances, to enable one to determine the action now required. It is POSSIBLE (I cannot be more precise) that applications for exception, re both the breaches to which your question draws our attention (there could in fact technically be several more such breaches) could be successful – that is where the advices of a specialist are essential.


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