To ask how much I've fucked up? HMRC

[ohshit89]

Self employed, done something a bit stupid.

Basically I admit that for the past 5 years of being self employed I have really no idea how much I've potentially earnt that year until my accountant sends me draft self assessments after 5th April. There are things I could do to keep better on top of this obviously but it's really never mattered that much because profits have never been massive. Because of the structure of the business currently, any profit counts as my own income for SA purposes so even though I only "pay" myself a modest amount every month, my earnings are whatever profit the business has made.

Basically business has boomed this past year, which I am not complaining about but our accountant has done my SA and I have earnt in the last tax year over 100k (and I'm talking about a jump from under 30k last year to over £130k). I really was not expecting it, I was obviously aware business had taken off but really I did not expect that. I do not "pay" myself anywhere near that sort of money per month and while the business does have a good float I certainly couldn't have extracted that all from the business for personal use.

Onto the issue...for the last tax year I have claimed free nursery hours for my son and tax free childcare. I am aware I will need to pay it back and I of course have no problems in doing so but I have obviously (unintentionally) been telling HMRC that I earn under 100k for a whole year when I have infact earnt over.

Will there be an issue? A penalty? I know i really should have an idea myself of profits and this has really shocked me into making sure I keep a better track of it but when I selected that I earnt under 100k I genuinely believed that I did.

Do I call them or will they contact me when my SA is submitted?

OMG the ignorance on this thread is astounding.
Please don’t take tax advice from randoms on the internet.

There are lots of reasons why you may/ may not be better off as a limited company or may/may not need to register for VAT. Should also say that the general limits on sole trader v limited and which is ‘best’ have changed a lot over recent years. Only your accountant will be able to give you considered advice based on your individual circumstances.

Many people deal with accountants once a year and that is all they want and are willing to pay for. They are still always encouraged to contact when there are changes though. Other clients talk to us monthly and so in those cases yes we would be expected to make advance suggestions re VAT and business structure. But for a stable £30k turnover business with no indication of changes, how on earth is the accountant expected to know?

Solidarity with the actual qualified accountants on here who aren’t mind readers and don’t magically know what has gone on when a client hasn’t told them of changes.
@Mardyybum @topcat2014 @Elle2018

Do not upset HMRC with vat, the Customs VAT section are not as lenient as Income Tax and Corporation tax sections. Get registered asap fo VAT and pay up urgently. Use your accountant that's what you are paying them for, protection from HMRC.

Sounds like you have a bookkeeper rather than an accountant.
You need to spend a bit more money and get an accountant. They’ll sort all this out for you.
Don’t panic, it’s all going to be fine.

Another FCA here. OP seems to have disappeared, which is perhaps what the problem is.

You should have registered for VAT from the point at which your turnover hit £90k in a rolling 12 month period. You need a proper sales invoicing system ASAP.

How will your customers react to suddenly paying an extra 20% on everything they purchase from you? If they are VAT registered businesses themselves it's not an issue, but it is if they are individuals who can't recover the VAT.

Please start communicating with your accountant more. It's your business and your responsibility to run it properly. Ask them for a meeting and for help in registering for VAT.

A friend of mine with a successful business is weak on the administrative side so has a book keeper one day a month to handle the purchase and sales ledger side. She chases up monies owing from clients, insurance, etc. it's made an enormous difference.

Well said, I was hoping someone would post here with a more reasonable/rounded comment rather than several pages of absolute nonsense.

I was just about to draft a response just like yours when I saw yours so you've saved me a lot of time.

People need to realise that things have changed and it's not the automatic default that limited companies save tax anymore - at most income points, they don't now. Likewise people need to realise that VAT is the same whether you're a sole trader or limited company, same with employing people.

And a big yes to how an accountant could possibly be at fault if the client hasn't given them any information about how the business is growing - they're not mind readers, and yes, lots of clients only want to spend the bare minimum on accountant's fees so deliberately only give you the "books" once a year, and make no contact at all at other times, so we're really working blind for 11 months of the year.

As you say, people really shouldn't be taking tax advice from randoms on the internet. It's just like the old "bloke in a pub" nonsense.

Where does it say it's a ltd company?

Always best to be honest- tell them. I'm surprised you accountant didn't give you the heads up, he/she should have done.
I would advise always be on top of it , even if you have an accountant- the change would be serious if it was downward-how do you know how much you can spend without having a problem if you have no idea what is coming in?

Requirement to register for VAT is when 12months revenue is predicted to be over the threshold (£90k). It is then payable quarterly in arrears and does not need to match the personal accounting year. I have a small business and my accountant advised when I needed to register for VAT and manages all the VAT returns for me. For example my VAT quarters are Sept - Nov//Dec-Feb//Mar -May//June-Aug. My business was incorporated one year at the end of August and so our Corporation Tax return runs Sept-Aug.

We took over a business well below the Vat threshold. I did suspect it was better than they said because the till was a tupperware box in a filing cabinet. We put in a till banked every red cent, put in a card machine. Reinvested in new plant, shop refit. Computer and software system. Within three years had quadrupled turnover. At some stage accountant said woah, register for Vat. So we did. We then had a vat inspection. Somewhat nerve wracking. They were there for two days, found £44 I think.

Was a bit annoying because the previous business owners were the guilty ones not us.

Is the OP paying the accountant for a more than once a year compliance service though? Apologies if I've missed that.

If you want a regular (ie at least quarterly) management accountancy service there would be a substantial fee attached.

No, she is substantially better off being LTD. There is no “it depends”. It is fact based on what she has posted.