VAT-Caught between a rock and a hard place.

[Jerry]

On what exactly is this statement based ? A company's debt is a company's debt unless directors have been dishonest or negligence can be proved , no suggestion of either here and the threshold of proof is pretty high. My advice is find out the extent of the liabilities if any and if more than you have to pay a liquidator probably about 5 -6 K , then you should liquidate. It is essential to get an accurate statement of the companies assets and liabilities first , if the company is insolvent you are actually committing an offence by continuing to trade and not liquidating it .

I've been in this situation (Actually narrowly avoided it) due to my main client, a FTSE listed company, going bankrupt and owing me 4 months money. I know...i should have walked earlier but i didn't.

When HMRC find out that you are closing the business through insolvency, they will first seek to demonstrate that you have taken dividends from the business. Salary is considered to be acceptable. If you have done this and not paid taxes, then this is considered to be fraudulent. They will therefore seek to (i) have the debts levelled against you personally and (ii) have you struck off as a director.

I managed to come to a payment arrangement (i only owed £18k, and i had found another contract). But there is little understanding on their part that actually, you have to live. And to live, you have to draw money.

Of course, if you decide to tow the line and NOT draw that money out of the business until its financial situation is sorted, you would starve to death. Closing a business takes some months, even if its solvent. And the DWP won't pay you benefits until it is closed.

[geoff from contracta IOM]

HMRC have a very nasty habit of applying for and getting through the veil of incorporation for companies that go down the pan owing them money. It's nowhere near as simple as that and some serious advice is necessary before thinking about it.

On what exactly is this statement based ? A company's debt is a company's debt unless directors have been dishonest or negligence can be proved , no suggestion of either here and the threshold of proof is pretty high. My advice is find out the extent of the liabilities if any and if more than you have to pay a liquidator probably about 5 -6 K , then you should liquidate. It is essential to get an accurate statement of the companies assets and liabilities first , if the company is insolvent you are actually committing an offence by continuing to trade and not liquidating it .

[craig1]

It might be helpful for me to point out at this stage that any VAT debt will "the company's" not yours, insolvency may be the best option for the company which could be where your accountants are going with the closing down chat

HMRC have a very nasty habit of applying for and getting through the veil of incorporation for companies that go down the pan owing them money. It's nowhere near as simple as that and some serious advice is necessary before thinking about it.

[geoff from contracta IOM]

Ok, thanks for the replies. Firstly, say i had been due to charge VAT and my original accountant and VAT specialist were wrong, i have all the emails and paperwork from them, can i claim any liability from them?
Secondly, the other couple of accountants seem to think that closing down the company, settling the taxes and such, and starting up afresh would be the simplest option.
Also, how would the VAT due, be calculated, say i was eligible for a flat rate scheme, would that take the final VAT bill down? The amount would be quite sizeable, probably so much so that it would realistically take me a few years to pay

It might be helpful for me to point out at this stage that any VAT debt will "the company's" not yours, insolvency may be the best option for the company which could be where your accountants are going with the closing down chat

[ASB]

Ok, thanks for the replies. Firstly, say i had been due to charge VAT and my original accountant and VAT specialist were wrong, i have all the emails and paperwork from them, can i claim any liability from them?

Possibly, but it depends on the standard of the work they did etc. Ok, let us assume they were wrong but were they negligent? Certainly it wouldn't be an easy ride. You'll be fighting their PI insurers etc.

Secondly, the other couple of accountants seem to think that closing down the company, settling the taxes and such, and starting up afresh would be the simplest option.

I fail to understand this advice. If you sort out the mess properly paying anything that is due then what is the point in dissolution and reestablishment of a new company (also you can't strictly just dissolve and restart anyway without going through a members liquidation which is a comparatively expensive operation).

I guess there might be an optimistic hope that you could go through the motions, request to be struck off and hope HMRC don't object thus hopefully getting out of any liability and then phoenixing into another company.

Also, how would the VAT due, be calculated, say i was eligible for a flat rate scheme, would that take the final VAT bill down? The amount would be quite sizeable, probably so much so that it would realistically take me a few years to pay

You are required to account for vat from the date you should have registered.

You may be able to issue VAT only invoices depending upon the timing etc. Some limited info here:

VAT late registration - is there anyway to help my client? | AccountingWEB

In my view the thing you have to establish is whether or not you really should have been VAT registered and should have been charging VAT. I realise your initial advice was no = presumably being based on being out of scope due to your specific place of supply.

Your current advice is yes: but based on what exactly? You now use the wording "the company I am currently working through". It is possible this does make a difference. You give no information as to what you are CURRENTLY supplying through that company.

If you separate your supplied to those which are exempt/out of scope and those which are potentially vatable (i.e not exempt and in scope) is the total of the latter greater than 73,000.

It is possible that you don't need to be registered, or the damage of being non registered is small. It is also possible that the current person you are invoicing is not saying "you must be vat registered and charging vat". They may simply be saying that they will only do business with vat registered suppliers (not unusual). It is also possible that they believe the sort of supply they are receiving is vatable and in fact they are simply wrong (also not uncommon).

Good luck with sorting it out.

[craig1]

Ok, thanks for the replies. Firstly, say i had been due to charge VAT and my original accountant and VAT specialist were wrong, i have all the emails and paperwork from them, can i claim any liability from them?
Secondly, the other couple of accountants seem to think that closing down the company, settling the taxes and such, and starting up afresh would be the simplest option.
Also, how would the VAT due, be calculated, say i was eligible for a flat rate scheme, would that take the final VAT bill down? The amount would be quite sizeable, probably so much so that it would realistically take me a few years to pay

Start here (official guidance), especially section 4.

[malvolio]

Ok, thanks for the replies. Firstly, say i had been due to charge VAT and my original accountant and VAT specialist were wrong, i have all the emails and paperwork from them, can i claim any liability from them?
Secondly, the other couple of accountants seem to think that closing down the company, settling the taxes and such, and starting up afresh would be the simplest option.
Also, how would the VAT due, be calculated, say i was eligible for a flat rate scheme, would that take the final VAT bill down? The amount would be quite sizeable, probably so much so that it would realistically take me a few years to pay

Don't understand closing down the cmpany, tbh. You can't close it until HMRC agree that all outstanding debts - including your VAT lilability - is cleared off, at which point there's no longer any point in closing it... Perhaps I'm missing something.

As for years to pay - perhaps not. You can ask, but I don't think VAT is worked the same way as income taxes, you may not be able to get terms. They'd prefer to bankrupt you instead.

Hence, get advice - qualified advice with someone's name on the bottom - so you understand exactly what the position is, what you owe and what yuo need to do now. Non-payment is a criminal offence and the VAT man has teeth, so make sure you aren't relying on us amateurs.

[Zeke]

Ok, thanks for the replies. Firstly, say i had been due to charge VAT and my original accountant and VAT specialist were wrong, i have all the emails and paperwork from them, can i claim any liability from them?
Secondly, the other couple of accountants seem to think that closing down the company, settling the taxes and such, and starting up afresh would be the simplest option.
Also, how would the VAT due, be calculated, say i was eligible for a flat rate scheme, would that take the final VAT bill down? The amount would be quite sizeable, probably so much so that it would realistically take me a few years to pay

[malvolio]

OK, I understand that, but the sensible low-risk approach is to register for VAT if you're in sniffing distance of the threshold and work out what you actually need to pay afterwards. As I said, even if your entire income is from sources that are not VATtable, you still have input VAT to cover off. You can always de-register if it turns out you're never going to be in scope. Or your income stream may change to put it in scope of VAT again. Who knows..

The OP may easily not have a problem to resolve, but his advisor has put him in a very difficult position by not offerring clear, precise guidance.

[ASB]

If your UK turnover is over £73k you have to register for VAT.

Not at all. Though you are welcome to redefine what you meant by "UK turnover".

HM Revenue & Customs: VAT rates, thresholds, fuel scale charges, exchange rates

"VAT registration threshold
If you're in business, you must register for VAT if your VAT taxable turnover for the previous 12 months is more than £73,000. This figure is known as the VAT registration threshold. The threshold changes - usually once a year announced in the Budget - so you should regularly check your turnover against the current threshold.
You must also register for VAT if either of the following applies:
you think your VAT taxable turnover may go over the threshold in the next 30 days alone
you take over a VAT-registered business as a going concern"

and later

"Remember that your VAT taxable turnover includes only the goods and services you sell that you have to charge VAT on, even those that are zero-rated. It doesn't include sales that are exempt or outside the scope of VAT."

From the OPs description it appears likely that a large part of his turnover may well be outside the scope of VAT - but that is by no means certain; his original accountant may well have been correct in their advice.

[Craig@Clarity]

Generally, if you're a UK company and providing services to a UK client, then you charge VAT (assuming you're VAT registered).

If you're a UK company and providing services to a Non UK business then its outside the scope of VAT otherwise if it is a non UK "individual" then if could be subject to VAT. It's to do with place of supply HM Revenue & Customs: How to work out your place of supply of services for VAT

Closing your company down and starting "afresh" isn't going to help things. In order to close down a company you need to get your affairs in order and for all taxes to be settled, otherwise HMRC will simply object to the striking off of the company.

[malvolio]

If your UK turnover is over £73k you have to register for VAT. It doesn't mean you have to pay it if your supplies and/or services are not liable for it of course, so you may not actually owe any. Equally, on the plus side, if you're registered you can reclaim the VAT you paid out elsewhere in the line of business.

Sounds to me like you need to get a qualified opinion on your VAT liability and stick you hand up if you owe something (and Google Vince Cable and VAT for an illustration of how to get away with it...).

If it's owed you have to pay it. Worst case would be an additional penalty and interest on the unpaid VAT but you may have some room to recover that from the original accountant if he was really that incompetent.

[Zeke]

Hi, first post here and looking for some advice.
I started up as a ltd company 3 years ago, got an accountant and away i went. I noticed that in my 1st year of trading that i was reaching the threshold for VAT. I met up with my account who informed me (after meeting with some VAT specialist) that i was working outside the the realm of VAT (I mostly work offshore). I accepted this and carried on as per normal.
He also said it's always better not to get in involved with VAT if you don't need to????
Anyway, i decided to change account after speaking with other contractors ( He wasn't working the company as efficiently as it could have been, and started hitting me with hidden charges as well as numerous other issues)
I have been to a few other accountants, who have taken my information and all have said that i should have been charging VAT. The company i am currently working through also said that to continue working through them i need to become VAT registered and start charging it!!!
The other accountants have advised i close my current ltd company and start afresh and get everything in order, which sounds good in practise, but does it open myself up for a huge VAT bill down the line from the previous company.
I really feel quite let down by my accountant and am really confused at the moment with what to do. Any thought on this would be greatly appreciated.