VAT bill

[MarillionFan]

I don't know how you get an estimated VAT bill. Are you sure it isn't a fine?

You shouldn't have to pay the VAT, but in theory you'll have to pay Corporation Tax based on the value of the work that you've done even if you haven't received the money. You can subsequently claim that back if it's a bad debt, but you have to be reasonable about calling it a bad debt (i.e. make efforts to recalim the money).

I calculate all of my VAT returns based on my bank account. So in your case you've turned over nothing and therefore have no VAT to pay.

You need to file a VAT Return. The £150 is estimated. Purely that. So get a form (or do online for the missing period). You will not be fined as it your first time and you owe nothing. You may have incurred some costs, but I will only claim for them once I have paid out for them through the company account.

But deal with immediately. Letters from HMRC can pile up and get stressful.

[SodaPop]

If the sale occurs in a year then it would be declared as turnover and tax would be due on it, regardless of whether it's been paid, unless it's been written off as a bad debt. If the debt is written off in the following year it may well create a loss that you can then carry back against the profit in the prior year. The net result will be the same, but you'll end up paying tax then reclaiming it.

Clare, thanks very much for this. It is very useful to me and I am going to read through the links you sent in detail.

I wondered if you could please help me on one point about when the debt is written off. If the sale is made and the corporation tax paid in Year 1, and then the debt is written off in Year 2, can I still claim the tax back, even if there is no further income in Year 2? The reason I ask is because I wonder if I would actually claim it back and get it paid back to me, or whether it is just that I could deduct it from the Year 2 tax bill.

EDIT: Sorry, another question. You also mentioned that if I worked on a "cash accounting basis" then I could submit a zero VAT return. Do working on that basis have any impact on corporation tax too?

Thanks very much for your help so far.

[Clare@InTouch]

Clare, thanks very much for this. It is very useful to me and I am going to read through the links you sent in detail.

I wondered if you could please help me on one point about when the debt is written off. If the sale is made and the corporation tax paid in Year 1, and then the debt is written off in Year 2, can I still claim the tax back, even if there is no further income in Year 2? The reason I ask is because I wonder if I would actually claim it back and get it paid back to me, or whether it is just that I could deduct it from the Year 2 tax bill.

EDIT: Sorry, another question. You also mentioned that if I worked on a "cash accounting basis" then I could submit a zero VAT return. Do working on that basis have any impact on corporation tax too?

Thanks very much for your help so far.

Hi Sodapop,

Yes - in year 2 there would be a loss, and that loss could be carried back to the prior year to offset the profit in that prior year. You could then reclaim the tax paid (it doesn't need to be used against tax in year 2). It doesn't matter that you had no income in year 2.

If you've only been trading a few months then it may not an issue at all. If you set the company up in August 2010 then your first accounts won't be until August 2011 - that's plenty of time to attempt to recover the debt and have a good case for writing it off in the first year. You could then simply apply to have the company struck off.

Being cash accounting for VAT does not affect the accounts or Corporation tax - they are always prepared on an accruals basis (i.e. if it's invoiced it's included, regardless of whether it's been paid).

Happy to help

[escapeUK]

Hi,
I have, however, received a VAT demand today. It is only for £150, which they have estimated, because I didn't submit a VAT return.

They are like criminals arent they, or scammers at best. Sending a small demand for something, they think you have only billed £900? Hoping you will bite and pay. I especially liked the bit where one poster suggested in some cases you have to pay the tax for something you never got paid for. Classic.

One thing I wondered in this exchange, if you are a programmer and you have a company all setup and you are still not working. Why dont you get looking for a new contract?