VAT Avoidance

hairylairy

I have a new client who is VAT reg and has a son who has just set up S/E in a similar business. The father has bought some plant, has claimed the VAT on it and now wants to sell it to his son at a greatly reduced price, saving a lot of money on VAT.
Obviously shouldn't be done but I can't find where in the VAT guidance this is stipulated. Also anybody else 'dumped' a client and how best to do it!

douglasstroud

Should it not be sold at Market Value plus VAT for an under value disposal to a connected person?

hairylairy

Yes I think you're right. As I'm not prepared to do things their way, think I'll have to drop them. Not sure how though.

douglasstroud

Just explain that what they are proposing is wrong and if they do no not agree to do it in the correct way then tell them that you can no longer act for them and disengage, you may also need to consider filing a SAR.

MarieNoelle

VAT Act 1994 sch 6 may help

1(1)Where—
(a)the value of a supply made by a taxable person for a consideration in money is (apart from this paragraph) less than its open market value, and

(b)the person making the supply and the person to whom it is made are connected, and

(c)if the supply is a taxable supply, the person to whom the supply is made is not entitled under sections 25 and 26 to credit for all the VAT on the supply,

the Commissioners may direct that the value of the supply shall be taken to be its open market value.

burg

@hairylairy I’ve just had to go through something very similar with a client who actually has committed VAT evasion basically we made them aware of a VAT error we found and they are refusing to inform HMRC.

Now apologies if this gets long but there is lots to consider...

1 - the staff member concerned made an internal NLR report to me as the MLRO to consider.
2 - I conducted a review and considered what action we should take.
3 - we decided we need to inform the client of the legal aspects surrounding their actions (not that we would make a MLR report though) I.e. possible penalties and HMRC action
4 - we advised them if they decide to take such action they put us in a position where if we continued to act we would be undermining our own professional standards
5 - we gave them 14 days to consider all the information we had provided them with and provide us with what next steps they wished to take. If they make the “wrong” decision then we disengage, if we hear nothing we disengage
6 - we informed our Professional indemnity insurers as if we disengage and they become non-complaint we may put ourselves at risk of a claim. Better to inform them early.
7 - consider your position in respect of professional clearance to another accountant. You need to provide all relevant info but you cannot tip off the client if you have made an SAR
8 - consider if a SAR is required and action it

Do not let what a client pays you or what they say influence your decision. Make your own judgement using the profesional standards, ethics and MLR guidance provided by the AAT.

Good luck. If you want to chat it over I’d be more than happy to just send me a PM and we can arrange a chat.