VAT bill

[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?

[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

[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.

[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.

[TestMangler]

What are they basing the estimate on if it's your first return? Or is £150 just a standard amount?

They base it on the 'take the number you first thought of and double it' method.

I took a year off (Last July to this July) to get a plan B up and running. After three consecutive quarters of zero returns, I forgot to do the last one and they sent me an estimate for over £7000 !! Thats at least a grand more than the largest quarterly VAT bill I ever paid. When I phoned the VAT office to inform them, I asked the question only to be told they have a 'system' that does it automatically by looking back at your last years average. Looks like it may be written by bobs. (Zero + Zero + Zero + £4.5K)/4 = £7K

If the OP sends in his zero return, it will sort itself out.

[Clare@InTouch]

Thanks Clare. I wonder if you could tell me what impact straddling the year end might have, please?

With regard to the director tax return, do you mean that I will just need to submit a personal tax return, simply because I am director of a company?

Thanks to all for the help so far.

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.

If you're certain it won't be paid then you can write it off - HMRC guidance simply states that you must have taken all reasonable steps to recover it. I'd just advise to keep evidence of everything you've done to recover the money. Have a read through the Business Link pages here:

Managing late payment | Business Link

For VAT purposes you can write it off it it's over 6 months old, and you've written it off in your accounts.
HM Revenue & Customs: Bad debts: how to reclaim the VAT

The Tax Return - yes, being a company director means you should complete a return. When you became a director you should have completed a form SA1, which you can download here: HM Revenue & Customs: Introduction to Self Assessment

[SodaPop]

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).

Thanks. I wonder if you could guide me a little on how much effort I might have to show. Would I need to get as far as the courts?

Agree about the CT. It might well be an issue if the invoice and subsequent bad debt claim straddle a year end.

Don't forget that as a director you'll have to file a tax return too.

Thanks Clare. I wonder if you could tell me what impact straddling the year end might have, please?

With regard to the director tax return, do you mean that I will just need to submit a personal tax return, simply because I am director of a company?

Thanks to all for the help so far.

[Clare@InTouch]

What are they basing the estimate on if it's your first return? Or is £150 just a standard amount?

That's probably why it's so low - they have no previous information so it's pure guesswork. Usually they look to your prior returns and base the assessment on them.

Bit more info on assessments here:

http://www.hmrc.gov.uk/vat/managing/...ssessments.htm

[VectraMan]

HMRC will issue an estimated bil if you don't file a return - they are simply guessing. Penalties don't tend to arise unless you're late more than twice.

What are they basing the estimate on if it's your first return? Or is £150 just a standard amount?

[Clare@InTouch]

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).

HMRC will issue an estimated bil if you don't file a return - they are simply guessing. Penalties don't tend to arise unless you're late more than twice.

Agree about the CT. It might well be an issue if the invoice and subsequent bad debt claim straddle a year end.

Don't forget that as a director you'll have to file a tax return too.

[VectraMan]

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).

[Clippy]

It sounds like you really haven't traded and that, in truth, your 'mate' will never pay you.

As such, If I was in your position, I would go for voluntary strike off via Companies House.

Do a Google search - you just need to download, complete and send off the form with a, IIRC, £10 cheque to Companies House.

It'll take a couple of months but Companies House will strike your Ltd from the register.

Also, contact the VAT man and advise him that you have finally got round to submitting the form to have the Co. voluntarily struck off as you never traded and they will advise regarding your current and future liability.

This is much cheaper than closing the company via an accountant and is only applicable if you haven't traded.

As ever, I am not an accountant/qualified to give this advice so treat accordingly.

[Clare@InTouch]

1. Yes, if the debt turns out to be bad you can reclaim any VAT you've paid to HMRC.

2. True, if you work on a cash accounting basis. It's fine to do this without getting prior approval from HMRC. If that's the case, you simply need to submit a nil return and HMRC should amend the assessment.

3. If you wanted to loan money to the company it really is a siple case of transferring the money into the company account. It will then stay there as owed to you, and you should be free to withdraw it at any point in the future without tax consquences (I say should as I don't your full details so you may owe the company money which would offset it).

If you intend closing the company I really would suggest you talk to an accountant - if nothing else you'll need accounts and a tax return for the period of trading. It may not be a huge amount if it's a small amount of work.

[SodaPop]

Hi,
After being made redundant a few months back I set up a company to do some work as a software contractor for a company run by a guy I have known for a few years.

I set up the company at the beginning of August and started working on the contract at the same time. Basically the guy managed to string me along, without paying me a penny, until the end of October when he gave me notice (the contract required one day's notice from either party).

He still claims that he will pay me when he gets the money, so I have kept the company going, but I am doubtful and I think that the company has no assets to be worth suing him for.

I have, perhaps stupidly, not used an accountant (except for the initial company setup) because the realisation that I might not get paid emerged early and I didn't want to spend money if I was never going to have anything other than zero sum accounts to do.

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.

I do perhaps need to get an accountant, although I really don't want to have to spend a lot if I am never going to get paid (I have now gone back to permanent work).

I wondered if anybody could help me with the following, please:

1) If I never get paid, will I be able to claim back the VAT I pay?
2) Am I correct in assuming that I am only liable for the VAT on invoices that actually get paid, not just ones I issue?
3) Can I just pay money from my personal account into my business account to pay the VAT bill, or is there a more complicated process for a director to transfer funds into a company?

Any guidance would be greatly appreciated.