Blind panic!!! - VAT registration - can anyone help?

[AfterEightMintyy]

Self employed dh earns a good income which has generally gone up over the years. All very nice and good.

Received an email from his Accountants yesterday saying that he should have been VAT registered from June 2011 and that we are going to have to find £18,000 in VAT to pay hmrc, plus his usual tax which is payable at the end of December.

Wtactualf?

Dh is waiting to speak to his accountant and one of the first things he will ask him is why they are telling him 18 months too late. I understand there is also a penalty to pay because he did not register sooner. Erm, is it not his accountant's job to advise him on this sort of thing? He pays them a retainer of £100 per month plus extra for filing his accounts and seems also to get an invoice from them every time they answer a query.

I just can't believe this has happened

EEK! OK, I'm not brain of Britain when it comes to accounts but surely he'll only just be filing his tax return for that tax year now? So how can they even know if he's tipped into VAT registration?

www.hmrc.gov.uk/vat/start/register/when-to-register.htm

I assume you've seen this?

Thanks Wilson.

Well, yes, his accountants are going through his invoices/receipts for the tax year on which he is about to pay tax and say they have "noticed" that his earnings have gone up to a level where he should be VAT registered.

That link looks helpful, thank you.

I suspect both HMRC and his accountants will say it's his responsiblity to know the thresholds and when he goes over them

As a business owner, or self employed, he should be taking interest in his own financial affairs. The vat threshold for 2011 was £73000, he should have charged vat on every invoice produced after he had invoiced for 73k.

He must have invoiced for further 91k above this for a vat liability of 18 k. Unless your accountant has counted backwards from the total amount invoiced over 73k, and regarded it gross.

The good news is that you would also be able to reclaim vat on purchases from the moment he was liable to pay vat.

Who is accounting for his business expenses and making invoices for him?

Have you had no idea how much he has been invoicing for?

He does his own invoices. I knew his earnings were in the £70,000 to £85,000 bracket but was unaware of the threshold. And of course that is not all profit.

I don't usually comment on arrangements with other accountants but £1,200 a year plus extra for year end accounts seems like a lot for a company with turnover below the VAT threshold. They would also presumably be aware from the previous year's accounts that his turnover was heading towards the VAT threshold and advised him exactly of the regulations and how to check turnover each month. It is a company, not just self employment is it?

Does he log his invoices, in a spreadsheet for example? Send them to his accountant for them to keep track of?

What about his expenses, has he kept a log of those?

MrAnchovy, yes it is a Limited company. Yes, I do think £1200 + is quite a lot.

Dh's earnings in the previous tax year were only a little lower. I really think he could have been better advised.

What your dh pays his accountant is roughly what we pay ours, and he does our payroll (not many uk employees) paye issues, our annual accounts, and advice us any time we have a question. We pay no retainer. Accountants fees, naturally are tax deductable. Our books are millions of entries in excel sheets( figuratively speaking), and lever arch folders of receipts and invoices, and bank statements and credit card statements.

I do the day to day accounting with reconciling bank statements, income and expenses, vat returns, etc (2 full days per week set aside for this, unless I am preparing the annual accounts)

On the bright side, you will now be able to deduct vat off your accounting bills.

Yes, you would have thought his accountant would warn him of the reason why he needed to keep an eye on turnover!

Do they see his books/figures at any point other than accounts prep time?

No, just at accounts prep time .

Hmmm.
I agree with Anchovy. Not a very proactive accountant. Should have warned you. But sadly, ignorance of the law is not an excuse HMRC accept.
See if you can flat rate register possibly, otherwise, time to go through those pre registration receipts
but mainly
TALK TO HMRC a lot. Tell them what is going on, write to them and grovel.
Get your accountant to use all his professional letters to influence them too.

Thanks all. One of his five regular clients say they can pay him some VAT backdated. Just got to grovel to the others now. What a handy time of year to have to give this headspace!

If they're in the 70 - 85 bracket I really don't see where the accountant has got the 18k from though. Threshold is 77 (this year) so that only leaves 7k to pay VAT on?

Wilson
NOPE - because once over the limit, VAT is charged on EVERY invoice since the deemed registration date ....

But wouldn't the registration be deemed necessary only when he reached the threshold? So no VAT on earnings up to that amount?

yup, but that was 18 months ago as per the OP
and once the threshold is crossed then its all or nothing

SweetestThing - its not like higher rate tax where you pay it on the part of your earnings above £40,000 or whatever it is atm.

Once you have a year where you earn more than £77,000 in any given year then hmrc have decided that your services are vat-able. So you have to become vat registered, charge all your clients vat, and do a vat return every quarter.

Even if in the next year you only earn £50,000 (which would be quite possible in dh's profession).

Its rather a pita.

You can deregister if your sales fall again. But get the accountant to explain!
www.hmrc.gov.uk/vat/managing/change/cancel.htm