A different VAT question

[ittony]

I appreciate that lot of people may be about to be dealt a VAT headache of their own any minute, but I wonder if anyone can help with a different one I have.

My company is not VAT registered and my preference is to keep that way for the moment if possible. I've never been too worried about monitoring my situation with regard to the VAT registration threshold because my hourly rate is such that I would not exceed it working full time.

However, my invoices tend to get paid two to three months after I issue them and in my first annual accounts only invoices which had been paid by the year end were counted. If I do the same again this year the turnover figure will be under the registration threshold, but if I change my accounting basis this year and count all the invoices raised by my year end, plus the ones left over from the previous year which only got paid after that year end, then that will give me a figure over the registration threshold, but only because I'm effectively counting 15 months worth of invoices.

Is this likely to cause a problem with HMRC does anyone know?

[pmeswani]

I appreciate that lot of people may be about to be dealt a VAT headache of their own any minute, but I wonder if anyone can help with a different one I have.

My company is not VAT registered and my preference is to keep that way for the moment if possible. I've never been too worried about monitoring my situation with regard to the VAT registration threshold because my hourly rate is such that I would not exceed it working full time.

However, my invoices tend to get paid two to three months after I issue them and in my first annual accounts only invoices which had been paid by the year end were counted. If I do the same again this year the turnover figure will be under the registration threshold, but if I change my accounting basis this year and count all the invoices raised by my year end, plus the ones left over from the previous year which only got paid after that year end, then that will give me a figure over the registration threshold, but only because I'm effectively counting 15 months worth of invoices.

Is this likely to cause a problem with HMRC does anyone know?

You may get contacted by HMRC at the end of the company financial year to ask for proof that you are below the threshold limit. As long as you are able to demonstrate that you have invoices paid up to the year end and that it is below the threshold, you should be ok. I am not sure how this would work if payment of invoices are paid in the following financial year.

I could be wrong.

[QwertyBerty]

>However, my invoices tend to get paid two to three months after I issue them and in my first annual accounts only invoices which had been paid by the year end were counted.

Your annual accounts should include all the income you received or expect to receive from the work performed during the financial year. This gives an accurate snapshot of the state of the company's trading. It begs the question why you did it your way as it seems you are aware it was incorrect.

HMRC may view this as an attempt to delay paying the CT owed.

As for the VAT if you are over the threshold by a small amount maybe they will just tell to register for next year.

QB.

[Alan @ BroomeAffinity]

When establishing whether you need to be VAT registered, yuo need to look at the previous 12 months from the end of month before the month you are in, so its got nothing to do with the turnover in the accounts. so, its November now so you need to look at the 12 months to 31/10/08. Mext month you'd monitor it to 30/11/08 and so on.

But yes, you also have a problem that the accounts you have filed are wrong. As QB has said you have probably undeclared your profits and there is therefore a delay in your CT payments. However, as the CT rate had been rising in recent years, the chances are you have overpaid. Probably not by too much though.

Have you not considered becoming VAT registered to make extra profit from the FRS?

[ittony]

>
Your annual accounts should include all the income you received or expect to receive from the work performed during the financial year. This gives an accurate snapshot of the state of the company's trading. It begs the question why you did it your way as it seems you are aware it was incorrect.

HMRC may view this as an attempt to delay paying the CT owed.
QB.

I commissioned an accountant to prepare my first annual accounts and he prepared them on a cash received basis. I did wonder at the time, but he said that they could be done either way.

This year I'm inclined to do my own, and my preference is to err on the side of caution with respect to money owed to HMRC, so I would rather do them on a money invoiced basis, but the transition between the two systems leads to a misleading impression of breaching the VAT registration threshold.

[xoggoth]

Always thought you were supposed to include outstanding payments in turnover but if your accountant says is ok spose it is.

[Alan @ BroomeAffinity]

Its a fundamental principle of accounting that accounts should be prepared on an "accruals basis", ie, account for revenue when it is generated, not when it is received. So, I would say your have been misinformed.

[ittony]

When establishing whether you need to be VAT registered, yuo need to look at the previous 12 months from the end of month before the month you are in, so its got nothing to do with the turnover in the accounts. so, its November now so you need to look at the 12 months to 31/10/08. Mext month you'd monitor it to 30/11/08 and so on.

But yes, you also have a problem that the accounts you have filed are wrong. As QB has said you have probably undeclared your profits and there is therefore a delay in your CT payments. However, as the CT rate had been rising in recent years, the chances are you have overpaid. Probably not by too much though.

Have you not considered becoming VAT registered to make extra profit from the FRS?

Thanks. I realise it's on a rolling 12 month basis, and I've always been well below it on a work performed basis, but as the change in accounting bases for my annual accounts takes in a 15 month window of invoices, I wonder if a £69K odd turnover figure in there will set VAT alarm bells ringing?

This rolling turnover window for VAT registration, by the way; on what basis should that be calculated? Invoices issued, cash received, or billable work performed?

Cheers, T.

P.S. Yes, I have considered registration for FRS benefits, but I could do without the extra headache to be honest.

[Alan @ BroomeAffinity]

P.S. Yes, I have considered registration for FRS benefits, but I could do without the extra headache to be honest.

A couple of grand is worth the headache surely. You're probably looking at about 20 minutes max per quarter.

[QwertyBerty]

P.S. Yes, I have considered registration for FRS benefits, but I could do without the extra headache to be honest.

For those companies with low input VAT (which I suspect will be most contractors) the profit from being on FRS VAT is literally free money, and should seriously be considered. Plus it will simplify your VAT calculations.

QB.