Client does not want to pay back dated VAT invoice

[Jessica@WhiteFieldTax]

No, they said they asked HMRC who confirmed they are not required to pay it. I talked to HMRC and confirmed this is true. Can't go to small claims court if even HMRC says I have no case!

With respect you may have asked the wrong people the wrong question; HMRC would say theres no compunction to pay VAT element of late invoice, but they are not lawyers and its a civil issue rather than tax one. To explain this further if you had charged vat at the time, properly registered, etc, and the customer had disputed it they probably would have said the same thing; they don't enforce debts, just a turnover tax on your business.

At the root of this is contractual; does the contract let you charge vat? If so, does it let you charge it late? And it may well be these are issues of implied contract terms rather than actual ones; if you can make that case you'd have a reasonable chance in SCC, although the time is counting against you. You need some sharp legal advice, rather than accounting advice IMO, but I suspect is the legal costs will outweigh the debt.

[VectraMan]

What would happen if you just didn't apply VAT to that invoice then? I guess HMRC could investigate you at some time in the future and find the "mistake". I can't see why HMRC should make a profit out of your loss.

What if you call the net the gross? I.e. if it's £1200 and you now want the VAT, instead call the invoice £1000+VAT for the purposes of your accounts and the VAT return. Obviously you lose some money, and I'm not sure if that counts as fraudulent, but at least you're not in the situation of having a hole in your company accounts from having to pay HMRC VAT that you never received from the client.

Expecting a past client to go out of their way to pay VAT when you gave them no indication at the time seems a bit cheeky. Even if it's neutral to them, it's still work for their accounts people and it seems to me entirely reasonable for them to refuse. I had to do the "VAT registration pending" and then send later invoices thing when I started, but that's the procedure.

[Wanderer]

If hmrc confirm the client isnt compelled to pay the money then suing your accountant is your only option imo.

I don't think you could reasonably sue your accountant unless they raised the invoices. I mean, if you raised an invoice and neglected to add VAT and the supplier refused to pay it then could you sue the accountant? Of course not.

My business wouldn't just write off £1600 quid just like that..... Take it to a debt collector and see what they say.

[BolshieBastard]

I don't think you could reasonably sue your accountant unless they raised the invoices. I mean, if you raised an invoice and neglected to add VAT and the supplier refused to pay it then could you sue the accountant? Of course not.

My business wouldn't just write off £1600 quid just like that..... Take it to a debt collector and see what they say.

My point is, that the OP would need very strong evidence to support suing the accountant. Without that, the accountant could say the OP 'asked us if there were any problems retrspectively registering for VAT. We said no, not normally. We would advise if your co is not VAT registered but you are considering it, any invoices should be issued annotated 'the company is not currently VAT registered but reserves the right to do so in accordance with VAT scheme \ time limits and may retrospectively charge VAT to this invoice' etc, etc.

As regards debt collectors and as stated in my other post, yes, they could take it on but if they discover the 'debtor' isnt legally obliged to pay the VAT, would they bother?

The OP clearly needs to seek professional advice. My honest opinion is, if hmrc are correct, he may have to take the hit unless he can prove his accountant was negligent in the advice they gave.

[Gulliver]

With respect you may have asked the wrong people the wrong question; HMRC would say theres no compunction to pay VAT element of late invoice, but they are not lawyers and its a civil issue rather than tax one. To explain this further if you had charged vat at the time, properly registered, etc, and the customer had disputed it they probably would have said the same thing; they don't enforce debts, just a turnover tax on your business.

At the root of this is contractual; does the contract let you charge vat? If so, does it let you charge it late? And it may well be these are issues of implied contract terms rather than actual ones; if you can make that case you'd have a reasonable chance in SCC, although the time is counting against you. You need some sharp legal advice, rather than accounting advice IMO, but I suspect is the legal costs will outweigh the debt.

Actual terms of the contract do not even mention VAT. Not sure how could I check implied terms. I see your point re what HMRC said. Not sure what to do. 1.6K is definitely too large debt to swallow. Would I have a case on SCC against my accountant for giving me incomplete and inaccurate advice?

[Gulliver]

What if you call the net the gross? I.e. if it's £1200 and you now want the VAT, instead call the invoice £1000+VAT for the purposes of your accounts and the VAT return. Obviously you lose some money, and I'm not sure if that counts as fraudulent, but at least you're not in the situation of having a hole in your company accounts from having to pay HMRC VAT that you never received from the client.

Expecting a past client to go out of their way to pay VAT when you gave them no indication at the time seems a bit cheeky. Even if it's neutral to them, it's still work for their accounts people and it seems to me entirely reasonable for them to refuse. I had to do the "VAT registration pending" and then send later invoices thing when I started, but that's the procedure.

I do understand the client. I would do the same. If I do the lowering of the invoice value trick I still will have to pay £1.3K.

[Gulliver]

I don't think you could reasonably sue your accountant unless they raised the invoices. I mean, if you raised an invoice and neglected to add VAT and the supplier refused to pay it then could you sue the accountant? Of course not.

My business wouldn't just write off £1600 quid just like that..... Take it to a debt collector and see what they say.

Did not neglect anything. VAV was not yet registered at the time of raising the invoice. Accountant gave incomplete advice.

[Gulliver]

My point is, that the OP would need very strong evidence to support suing the accountant. Without that, the accountant could say the OP 'asked us if there were any problems retrspectively registering for VAT. We said no, not normally. We would advise if your co is not VAT registered but you are considering it, any invoices should be issued annotated 'the company is not currently VAT registered but reserves the right to do so in accordance with VAT scheme \ time limits and may retrospectively charge VAT to this invoice' etc, etc.

As regards debt collectors and as stated in my other post, yes, they could take it on but if they discover the 'debtor' isnt legally obliged to pay the VAT, would they bother?

The OP clearly needs to seek professional advice. My honest opinion is, if hmrc are correct, he may have to take the hit unless he can prove his accountant was negligent in the advice they gave.

My accountant tried to blame it on me saying "you said your clients would have no problem sending them back dated VAT invoice.". I told her this is not how it was but it was her who said so. Then she backed up and said "I was right". I have this in the email trail.

When she advised me about back dating VAT. I asked her if this is ok and will my clients just pay it. She said that yes, this should not be a problem if they are VAT registered as they can reclaim it. That's all she said and she did not tell me anything about risks or that some clients might not want to pay it.

[Gulliver]

If hmrc confirm the client isnt compelled to pay the money then suing your accountant is your only option imo.

Getting debt collectors or going to the SCC will be a waste of time and money since it has been confirmed there's no compunction to pay. A debt collector may take the case on to get money off you but they'll have the same difficulty you have ie not compelled to pay.

Similarly, the SCC once learning there's no compunction to pay will be unlikely to rule in your favour (imo).

You'd also have to prove your accountant has never said the onus is on you to check all facts and have mislead you or been negligent regarding the pros and cons of retrospective VAT registration.

I'd suggest trying to discuss it professionally ie no ranting and raving, with your accountant and see where you get.

In all honestly, I think you have little chance of getting redress and may have to take the hit. Just my opinion though.

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.

[Contreras]

Actual terms of the contract do not even mention VAT.

Right. So there's no case to pursue against the client - glad we got that one cleared up.

I do understand the client. I would do the same. If I do the lowering of the invoice value trick I still will have to pay £1.3K.

And then there's you the extra cash you "earned" from backdating. Plus let's not forget your CT bill will be lower because of the loss. Are you still out of pocket now?

My accountant tried to blame it on me saying "you said your clients would have no problem sending them back dated VAT invoice.". I told her this is not how it was but it was her who said so. Then she backed up and said "I was right". I have this in the email trail.

When she advised me about back dating VAT. I asked her if this is ok and will my clients just pay it. She said that yes, this should not be a problem if they are VAT registered as they can reclaim it. That's all she said and she did not tell me anything about risks or that some clients might not want to pay it.

So basically the original advice was "verbal" and it's your word against hers about what was said and in what context it was said.

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.

Time to get real. You may have cause for "complaint" but that's about it.

The best you can hope for is for your accountant to reduce their bill as a gesture of goodwill.

Chalk it up to experience. And next time apply some due diligence.