Late VAT Registration

shelleym

Hi There

I am looking for some advice on how my client should account for VAT on sales made prior to noticing he was over the threshold, Basically he has made sales of £126k over a 16 month period and i am wondering if he needs to add 20% to this figure or if he can say these sales where inclusive and deduct 21k from the sales made. I am also wondering if the amount he needs to pay in VAT reduces his profits and therefore his tax due?

any advise on this would be greatly appreciated

Shelley

Bertie

Hi,

Are there any purchases?

Will owe £21000, plus 10% of what is payable due to being late - so, £23100.

Dr Sales £21000
Cr VAT £21000

Dr VAT Charge/Fine (NOT tax deductible) £2100
Cr Bank £2100

MarieNoelle

Hi @shelleym
It is unclear when your client exceeded the VAT threshold (you mention a 16 months period). Had he exceeded the threshold before that 16 months period?

shelleym

Hi Marie

He exceeded the threshold in May 15 and I only picked up on it when submitting his tax return in January so all the sales where between may 15 and November 16 as he set up a limited company and registered this for VAT in October 16.

shelleym

Hi Bertie

He has purchases of 85k to offset. Is it correct to deduct VAT from the sales rather than adding it? That's good news if it is

Bertie

The sales figure will be the VAT inclusive amount. Eg (for the purposes of this example) £126,000 is sat in the Sales a/c, or up to, and including now, £126,000 has been coded to sales - when only £105,000 should be been run through the sales account.

So in turn, Dr the sales account with the VAT figure of £21,000 and Cr VAT.

Same equal, opposite effect on the purchases account - Dr VAT, Cr Purchases.

Obviously don't just stop there, run through the journals too, any asset purchases, any other income - etc etc.



My explanation is for demonstration purposes only and shouldn't be taken as being professional advise, for which a suitable professional should be found.

MarieNoelle

Thanks for clarifying
So if he exceeded the threshold at the end of May he should have charged VAT from 1st July 2015.
He could either reissue correct invoices for 20% Vat to his customers or more likely treat receipts as Vat inclusive. I guess it depends on who his customers are (VAT registered business or not) but considering the timing the latter is more likely.
If receipts are Vat inclusive then his net income is reduced but you also need to consider the input Vat he can now claim in that period (as @Bertie mentioned) so this will reduce his expenses too.
Penalties for late registration and late filing and payment of Vat will apply.

Bertie

It sounds like you're going to be exercising some spreadsheets!

Remember the client can claim for purchases before registration (4 years (if they are still owned)) too.

Services, without checking - I'd say the boat has sailed on that one as I'd assume the 6 month period would be seen to be from when the client should of registered and not the now actual date.

MarieNoelle

Bertie said:

My explanation is for demonstration purposes only and shouldn't be taken as being professional advise, for which a suitable professional should be found.

I like the idea of a disclaimer @Bertie!

Bertie

It almost always feels dangerous answering a question without a letter of engagement in place, especially when we are not in receipt of all the facts and variables...

shelleym

Hi there

thank-you for all your advice so far. I am now wondering if i should amend the tax return sent in January to reflect the VAT amounts which should have been added/ deducted? this would obviously reduce his income tax figure paid which would help with paying the VAT

MarieNoelle

shelleym said:

Hi there

thank-you for all your advice so far. I am now wondering if i should amend the tax return sent in January to reflect the VAT amounts which should have been added/ deducted? this would obviously reduce his income tax figure paid which would help with paying the VAT

Yes of course as this would reflect the actual position of your client.