If you have discovered that you have underpaid VAT  to HM Revenue & Customs and are concerned what action you should take, read on. 

When did the error occur?

HMRC are now able to look back at the previous four years records should they chose to carry out an inspection whereas previously they were only able to look at the previous three years.

The extra year is not all bad news it also means should you have made an error in your favour you now have an extra year to rectify it.

Declaring errors

For accounting errors beginning on or after 1 July 2008, businesses can adjust past errors on the next VAT return they submit providing the error is less than £10,000 or one per cent of the Box 6 turnover figure up to a maximum of £50,000. Any errors above these amounts must be notified to HMRC on a separate form.

Penalties

A new penalty system was introduced for VAT returns due to be submitted after 1 April 2009.  Penalties are now charged based on a percentage of the VAT payable.

If an error has been made but reasonable care has been taken then no penalty is applicable, but deliberate or concealed errors are dealt with more seriously and can attract a penalty equal to 200% of the VAT undeclared.

Honesty is always the best policy

Should you have made a mistake and are likely to incur a penalty then honesty is your best policy, as this can lead to a reduction in the penalty charged. But beware if you have already been notified of a visit by HMRC voluntary disclosure before they carry out their inspection will not reduce your penalty.

Evading VAT registration

Failing to register your business for VAT when it should have been can be costly.  Now that HM Revenue & Customs  manage direct and indirect taxes it is easy for them carry out checks with regards to business turnover.

The annual registration limit increased to £70,000 from 1 April 2010.

And finally,

Don’t forget, all new businesses and those with a turnover over £100,000 must now submit their VAT Return electronically. If you have not already registered make sure you do as soon as possible. Do not leave it until the day your return is due it will be too late. For more information click here

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

The new ‘VAT online service’ (VOS) was launched by H M Revenue & Customs (HMRC) in November in prepartion for the compulsory online filing of VAT returns and electronic payment of liabiliies for VAT periods commencing 1st April 2010.

These new regulations will be enforced and effect all

• existing VAT registered businesses with a turnover (excluding VAT) of £100,000 or more (taken from the previous four returns submitted)
• businesses that register for VAT on or after 1st April 2010, regardless of turnover.

Once your business has been required to file online once, it must continue to do so.  The only exemptions are businesses involved in an insolvency procedure or those who have satisfied HMRC that the religious beliefs are incompatible with the requirement to use electronic communications!

If your business is VAT registered, you can expect to receive a letter from HMRC during February 2010 notifying you of your obligations.

There are proposals for this to be just the first step of the process and that all VAT registered businesses should manage their VAT returns and payments electronically from 1st April 2011.

The new VOS will enable users to

• Register for VAT
• Enrol for electronic filing
• View previously submitted electronic returns
• Set up email alerts to remind business owners of when returns should be submitted

Of course, if you do not want to be burdened with this, your accountant will be able to act as your agent in the same way as they can file payroll and self-assessment returns.  They will ask you to an authority to act (HMRC form 64-8 is not adequate for VOS) and may re-issue their letter of engagement to clarify the terms of this service.

More information can be sought from your accountant or HMRC’s online services website

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post