Client does not want to pay back dated VAT invoice

[Wanderer]

I can't believe how many people here would just bend over and take it.

As you talk about suing my accountant - which I thought would be my only option too. I have Legal cover by Hiscox which is through DAS. I think I should give them a call.

That's your best option. Let us know how you get on.

[Gulliver]

I can't believe how many people here would just bend over and take it.



That's your best option. Let us know how you get on.

Phoned DAS and they told me I may have a claim against my accountant on the basis of negligence and providing inaccurate advice. They advised me to send a formal letter to my accountant asking for a compensation for the loss I suffered with 14 days payment terms. In case they won't pay it DAS suggested me to pursue Small Claims Court against my accountant.

[Pondlife]

Not sure if this is a wise move TBH

Is this £1600 you are 'out', the amount of VAT you are trying to bill for, or the difference between VAT charged and VAT paid based on FRVS. If the former then you're probably only at £450 depending on your FRVS rate.

How much is it going to cost you to get yet another accountant to fix this mess since you're about to trash any relationship you have with the current one. I'm not suggesting you stay with her if she's a muppet but suing her isn't going to make it any easier for the next guy to get info needed from her. This may then cost you more to sort depending on the new accountants charging structure for taking on your books mid year and sorting out a mess.

Or have I missunderstood?

[craig1]

This is the ONLY retrospective VAT invoicing that HMRC officially approves. While awaiting VAT registration, you increase your rate to the client to rate+VAT but not charge VAT, when you receive your VAT registration reissue your invoice showing your original rate plus VAT.

If you try to backdate a VAT registration then every invoice from that date onwards becomes VAT liable meaning a large out-of-pocked VAT payment if you can't convince clients to pay out. They have no legal, moral or ethical duty to pay you backdated VAT just to fix your accounts, even if it is a zero sum game for them. (Actually, it's not a zero sum game as they have to do the admin around paying you, lose even a few pennies of interest on cash balances, etc)

[Wanderer]

Not sure if this is a wise move TBH

Agreed - I would much prefer to chase the client rather than the accountant.

Is this £1600 you are 'out', the amount of VAT you are trying to bill for, or the difference between VAT charged and VAT paid based on FRVS. If the former then you're probably only at £450 depending on your FRVS rate.

My understanding is that an invoice was raised for £8,000 then after registration an amended invoice was raised for £8,000 + £1,600 VAT and the client is refusing to pay the £1,600 VAT on the amended invoice.

What should have happened was that an invoice was raised for £9,600 (with no VAT) and then once the registration was done a VAT invoice raised for £8,000 + £1600 VAT. Using this method is the best one for the contractor but it creates a risk for the client that the contractor may disappear without completing the VAT registration and will just pocket the 20% extra they charged, leaving the client out of pocket.

In this situation it appears that the £1,600 VAT will still have to be be accounted for and paid to HMRC (or perhaps £1,392 if the FRS is used) so that represents a significant loss to the business.

Perhaps the accountant could get involved and write to the client to try and get this sorted out. It is a messy situation.

My work around was to get the VAT registration completed before I issued any invoices though I can understand that this wouldn't suit everyone...

[BolshieBastard]

This is the ONLY retrospective VAT invoicing that HMRC officially approves. While awaiting VAT registration, you increase your rate to the client to rate+VAT but not charge VAT, when you receive your VAT registration reissue your invoice showing your original rate plus VAT.

If you try to backdate a VAT registration then every invoice from that date onwards becomes VAT liable meaning a large out-of-pocked VAT payment if you can't convince clients to pay out. They have no legal, moral or ethical duty to pay you backdated VAT just to fix your accounts, even if it is a zero sum game for them. (Actually, it's not a zero sum game as they have to do the admin around paying you, lose even a few pennies of interest on cash balances, etc)

Would that get past the agent? They'll say your rate whether VAT registered or not is the net amount, not net amount plus VAT equivalent.

OK if you're working direct I can see it being acceptable but, agencies are dicks over things like this.

[craig1]

Would that get passed the agent? They'll say your rate whether VAT registered or not is the net amount, not net amount plus VAT equivalent.

OK if you're working direct I can see it being acceptable but, agencies are dicks over things like this.

I did it a few years ago when I had to set up my Ltd company as a subsidiary of my LLP. The agency were being dicks over me being a LLP and insisted that it wasn't "Limited'. Rather than lose a very good rate at a very good company, I set up a new company, went through group VAT setup and essentially had to wait until HMRC gave me a new VAT registration. The agency throughout the entire contract were so difficult that I promised myself never to use them again but they did accept the "temporary rate = real rate + VAT" thing quite easily and processed the reissued invoices without fuss when the registration came through. Agencies must be used to dealing with new contractors setting up VAT accounts at short notice so their accounts teams should know the VAT rules about things like this.

If an agency is being a dick over VAT rules then it's probably the know-nothing agent rather than his accounts teams.

[BolshieBastard]

I did it a few years ago when I had to set up my Ltd company as a subsidiary of my LLP. The agency were being dicks over me being a LLP and insisted that it wasn't "Limited'. Rather than lose a very good rate at a very good company, I set up a new company, went through group VAT setup and essentially had to wait until HMRC gave me a new VAT registration. The agency throughout the entire contract were so difficult that I promised myself never to use them again but they did accept the "temporary rate = real rate + VAT" thing quite easily and processed the reissued invoices without fuss when the registration came through. Agencies must be used to dealing with new contractors setting up VAT accounts at short notice so their accounts teams should know the VAT rules about things like this.

If an agency is being a dick over VAT rules then it's probably the know-nothing agent rather than his accounts teams.

Yes, I can just see the dicks saying the rate is £xxx not £xxx plus £xx and we'll only accept your invoices showing net VAT until we see your certificate.

[VectraMan]

My experience of doing it was to send an invoice for the net amount, with "VAT registration pending", and then another invoice with just the VAT when the registration came through. That was with a direct client, and they were fine. The rules might have changed in the meantime.

HMRC's suggestion of "raise your prices by 20%" might work for a shop, but you can see that having negotiated a rate with an agent/client, increasing it by 20% isn't going to wash. They can only reclaim VAT if they have a legitimate VAT invoice, so I can't see why they'd pay a non-VAT invoice for 20% more than agreed. If I received something like that I'd say "I'll pay when you send me a proper invoice".

[craig1]

My experience of doing it was to send an invoice for the net amount, with "VAT registration pending", and then another invoice with just the VAT when the registration came through. That was with a direct client, and they were fine. The rules might have changed in the meantime.

HMRC's suggestion of "raise your prices by 20%" might work for a shop, but you can see that having negotiated a rate with an agent/client, increasing it by 20% isn't going to wash. They can only reclaim VAT if they have a legitimate VAT invoice, so I can't see why they'd pay a non-VAT invoice for 20% more than agreed. If I received something like that I'd say "I'll pay when you send me a proper invoice".

It worked for me at one of the most pedantic agencies I've ever dealt with and was absolutely no hassle at all. Would you trust an agency that's messing you around to do the right thing and pay out retrospectively if they didn't have to? HMRC rules are quite clear, you can't charge VAT while waiting for registration but you are liable for it.