Reply to: Client does not want to pay back dated VAT 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.

[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".

[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.

[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]

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.

[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...

[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)

[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?

[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.

[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.

[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.

[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.

[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]

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]

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.