Not Registering for VAT – the VAT Challenge?

In our our role as an accountant, it’s our duty to inform our clients when to register for VAT.

Often, its a matter of turnover and sometimes even if the turnover hasn’t been reached we will let the client know that they will be better off registering for VAT.

This can be the case if the majority of the clients purchases are bought with VAT included and his/her clients are also VAT registered.

If they aren’t you can price yourself out of the market for your product making yourself less competitive, and ultimately it could devastate your business.

When people know you are more expensive than the competition they will look elsewhere. In today’s market driven economies, its becoming increasingly problematic as there are thousands of choices for product based companies when the customer wants to purchase something.

Running the risk!

You see, the problem lies when clients don’t want to register for VAT and their turnover has exceeded the turnover amount.

This can be quite the challenge for the accountant and it’s something that should never be brought into question. As accountants, we need to be clear with you and running a blatant risk such as this is not only reckless, but puts your business in doubt, your reputation and your future business plans.

No one wants to do business with someone who doesn’t pay their taxes.

Don’t ask, don’t tell?

If you are going down the route of not registering for VAT and not telling anyone for years……our advice is, NEVER go down the route of NOT telling your accountant your real sales figures. If it transpires later that you have not told your real sales figures – remember – your accountant is not liable – the business owner is!

We are here to protect you and ensure you don’t get into hot water – one way is to be entirely truthful with your accountant. If you don’t, you are risking your business future.

The last thing you want is a visit from HMRC at your premises because you failed to tell the correct figures to HMRC, and HMRC is visiting businesses more regularly since the credit crunch – they are now coming down hard on businesses who may have a strong likelyhood of being above the VAT threshold.

You need to make sure you are on the right side of the law.

If you hear of someone who is in the same industry as you and they are not registered for VAT, and you are suspicious they are above the VAT threshold – DO NOT COPY THEM. This is the biggest mistake you can make. You must speak to your accountant and they will explain the situation to you in detail.

Not registering for VAT is not a competition to see how long you can get away with it for – this can have dire consequences…

HMRC know about you and can visit you!

It really isn’t difficult for HMRC to find out if you are near the threshold or if you have passed it. A simple check outside your business will give a rough estimate of numbers of customers coming in and out and rough expenditures. If you constantly show a small figure – HMRC can check other businesses in the same industry in you and see how far you are off the figures.

They are also able to access bank accounts and access your accounts with companies house. So if you are thinking of not registering for VAT and think you won’t be found out, think again.

HMRC can also visit you in person. It seems strange doesn’t it? HMRC can visit me?? It doesn’t matter if you are a small business or a large one you are liable to a visit from the VAT inspector at some time in your business life.

This is why it is critical to keep your records intact for the previous 5 years and keep them at your premises. Do not assume your accountant will store all your records – they are not liable for your personal business records!

The Penalties

HMRC has been known to be quite lenient in recent years when re-claiming VAT back from businesses who have passed the threshold.

Nowadays, HMRC will reclaim all the money back from you and backdate the money – potentially bankrupting and crippling your business. Under current measures they are asking for businesses to voluntarily come to them and through this “amnesty” they may be able to offer a payment plan to you.

Under very large repayments and a fraudulent element has been detected you could be liable to a fine and possible criminal conviction.

Cash Only Businesses

One of the biggest dangers of having a cash only business is it can give you a false sense of security when it comes to VAT. You may be a takeaway, a newsagent or another business that takes cash on delivery.

For a cash only business, the turnover can quickly add up and it’s at this point you need to visit your accountant and find out how to get registered for VAT. If you stay unregistered for too long you are at risk of a HMRC visit – it’s as simple as that.

If your turnover is well above the VAT threshold and have made the decision to continue not registering for VAT you are running a risk that is reckless and could cause irreversible harm to your business when HMRC realise you are.

Bank Recorded Businesses

For bank recorded businesses you can’t hide from HMRC because everything is going through the bank!

Example: Adrian only realises that his turnover has gone over the VAT threshold after he has had his annual accounts prepared. He notifies the VAT office 18 months late that he exceeded the VAT threshold. His business sales in the 18 months were £110,000. His sales should have included VAT 20% .

Adrian could face a VAT bill of £18,333.  This is based on treating the £110,000 as the VAT inclusive price, so the VAT is 20/120 x £110,000. He could also face a penalty

(Source – Taxaid)

Stuck? Need VAT Help?

Call us today on 01132486019 and we can help you reduce the likelyhood of HMRC visits and VAT inspections.