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VAT: HMRC targets unregistered traders

HMRC has written to businesses which it believes are trading above the VAT threshold, but who are not currently VAT registered. Thomas Peterson explains what to do when such a letter arrives. 

23rd Mar 2021
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HMRC letter
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Tell the accountant

HMRC has not sent copy of the letter to the trader’s tax agent and so accountants will not be aware their client may have received the VAT related letter. It is important that the letter is copied to  the accountant as soon as possible, as the adviser can assist with mitigating penalties should the registration deadline have been missed.

What are the rules?

A business is required to register for VAT once its historic taxable turnover for the previous 12 months exceeds £85,000, or if it expects its future taxable turnover in the next 30 days alone will exceed £85,000. Exempt sales, such as land or insurance, do not count towards these thresholds. However, zero-rated sales, such as books and children’s clothing, and reduced-rated sales, such as alterations to houses, do count. 

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Replies (15)

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By Open all hours
24th Mar 2021 06:48

Just one more time that the status of agents is deliberately demeaned by HMRC.
Time for a concerted campaign to reverse this nonsense.

Thanks (8)
Replying to Open all hours:
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By Ian McTernan CTA
24th Mar 2021 13:34

Maybe our Institutes could take this up with HMRC? Oh wait, that might upset the applecart....

Thanks (2)
Brookwood Accountancy Director
By [email protected]
24th Mar 2021 09:35

What is the point of being a registered Agent if we are kept out of the loop? Albeit, the client is not registered for VAT and subsequently we are not "The Agent" in that instance. If all other matters are being covered by the 64-8 it isn't a huge leap for HMRC to make the connection and include the Agent.

Thanks (4)
Replying to [email protected]:
By Duggimon
24th Mar 2021 09:43

It is a huge leap, surely you can see it would be illegal for HMRC to provide information to a third party about an individual who has not authorised them to do so?

You would prefer HMRC guess who ought to receive the information and send it out to everyone who might want it?

More to the point, it is unnecessary that they send the letter to the agent. The letter is based on information HMRC hold, from tax returns, indicating the turnover is approaching or in excess of the registration threshold. A vaguely competent agent should not need a letter from HMRC before they spot the issue.

Thanks (2)
Replying to Duggimon:
Morph
By kevinringer
24th Mar 2021 13:51

My initial reaction was we've been cut out of the loop again but I on reflection I agree with Duggimon. We sign a 64-8 and have to indicate which taxes we are appointed for. If we'd not previously submitted a 64-8 with the VAT box ticked, we aren't appointed agents for VAT, so HMRC can't communicate with us.

This has got me thinking, as extra taxes get added and more tick boxes, perhaps the 64-8 should have a 'everything HMRC' tick box?

Thanks (4)
Replying to kevinringer:
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By Open all hours
24th Mar 2021 16:07

An ‘Everything HMRC’ box would be the answer. Maybe VAT isn’t on the 64-8 for some but that doesn’t mean we’re not scouring client diaries and having extended discussions to confirm that they really don’t book appointments on the third/fourth/fifth Fridays to keep turnover below £85K.

Thanks (0)
Replying to kevinringer:
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By johnjenkins
25th Mar 2021 09:16

As the client is not registered for VAT (therefore no 64-8 for VAT required) then any enquiry letter should be copied in to agent just as though there were an investigation.

Thanks (0)
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By crazyaccountant
24th Mar 2021 09:42

Issue is even if you register, bastards are taking 30 days to respond. I have a client registration done in November 2020, no information to date. i contacted them they said current time to process application is 65 working days that's 13 weeks a whole bloody quarter... what a shame.....

Thanks (5)
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By johnjenkins
24th Mar 2021 10:07

Good article Thomas, very interesting. I can only assume that Customs do not have the staff to carry out checks. Inland revenue ask questions (fishing expeditions) whereas Customs always did their checks (watching premises, sending officials to sit in cafes etc.) then hit you with their findings. Tax payers are now on notice that they might be a target. I have to conclude that customs officers are needed at the ports and airports.

Thanks (2)
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By Mr J Andrews
24th Mar 2021 10:15

The point of being ''......kept out of the loop.....'' is to create more burdensome, unnecessary time wasting administration.
The problem with incumbent head honchos within HMRC is the ignorance of Section 1 TMA 1970.

Thanks (5)
Replying to Mr J Andrews:
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By Charityguy
12th Apr 2021 15:44

S(1)TMA 1970. "The Commissioners of HMRC shall be responsible for...income tax, corporation tax and CGT" no mention of VAT...?

Thanks (1)
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By chodgkins1
24th Mar 2021 11:34

Would you include any accrued revenue in the rolling 12 mth calculation ?
My wife is a sole trader and is working on a project that won't be invoiced before the end of her tax year. For her sole trader accounts we would accrue revenue based on her day rate for the work done, but would we include this in the rolling 12 mth calculation?

To put some context to this, the amount is around 5k and her t/over including this for the 12 month rolling period will be around 75k. Excluding the accrued revenue now and including the full 10k in the month invoiced might result in her exceeding the 85k. Not trying to massage the numbers here, just want to compare the rolling 12 mth rule v the accruals accounting concept.

Thanks

Thanks (0)
Morph
By kevinringer
24th Mar 2021 13:30

I don't understand HMRC's timing. HMRC should be doing this exercise regularly but I don't recall it happening on scale before, ever. So why did HMRC choose to do this when their own VAT registration department has the biggest backlog it's ever had? Why has HMRC placed even more of a burden on their own officers. I phoned HMRC VAT earlier this week to progress chase a registration and was told the backlog is 158 working days. This has happened because even though HMRC had heard about Brexit, they didn't plan adequately for it. I wonder if whoever was responsible for issuing the letters even considered whether HMRC could handle it. Maybe they don't expect anyone to put their hands up and register?

Thanks (3)
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By Ian McTernan CTA
24th Mar 2021 13:32

Once again, HMRC ignore the agent and send out fishing letters without copying in agents....

Thanks (2)
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By tedbuck
25th Mar 2021 10:59

A few weeks delay on VAT registration - peanuts - I have a liquidation stalled because HMRC have taken 8 months so far to not agree a CT computation submission. Our letters and the liquidator's letters are unanswered and I believe HMRC have shut down the Agents CT line as well.

They really don't seem to love us yet we serve their purpose by getting stuff in to them on time and dealing with their problems. Pity we don't have professional bodies with people who live in the real world (Some exceptions I know Rebecca) - they are just like politicians and about as useful - still they can spend lots of our money tarting up their premises so that they can pontificate in comfort.

Thanks (0)