VAT inspection - The Book-keepers Forum (UK)

Zigs · Veteran Member

VAT inspection

farmergiles · Veteran Member

Zigs wrote:

Hi Im doing the bookkeeping for builder, he had no income fror the period of the vat return as the work he had undertaken was not completed therefore no payments had made to him, however he put the amount of vat to reclaim from the purchases he had made. HMRC have said that he has to have a income figure although none have been received, they have also said he cannot claim vat on cash purchases as all payments have to go through his bank account by cheque or card as he is a ltd company, can anyone advice me on where to signpost him for information on this or what information i can give him

Thank you and happy new year to everyone.

what a load of rubbish.
I do accounts and vat for several Ltd Co's, one of which supplies goods from Australia direct to S.Ireland. Therefore no vat. His vat 100 is for a refund every quarter until he gets UK based customers. Last vat inspection nothing was said about this or the fact that he pays for stuff by petty cash rather than card or cheque.
As long as your client fills in box 1, 2, 3 and 6 with "none" there is no problem. Don't let the inspectors bullshit you!

Zigs · Veteran Member

Thanks for that, they just dont like giving refunds if they can get away with it.

Much appreciated

Shamus · Forum Moderator & Expert

I think that I can understand where the revenue is coming from here.

You have to admit that if a builder takes a long term contract (a contract covering more than one financial period) it is pretty unusual for them not to receive interim payments. However, assuming that the payments received fell outside the period then this would seem to be a matching issue

SSAP9 (stock and long term contracts) states that where there is a reasonable expectation of profit then revenue should be recognised over the life of the contract.

FRS18 (Accounting Principles) states that income and expenditure should be recognised as earned or incurred, not as received or paid.

So, HMRC does have a point. The outputs should be matched against inputs to which they relate. In such instance why do they need to give any money back when in the next period it will just have to be paid back to them again. This is a timing issue, not an issue of whether the VAT is due or not.

On the bank account HMRC is again sort of correct. The company is a totally separate legal entity to it's owner. Any payments made must be proven. For example, if payment has to be made in cash (for example, if the client is unable to get credit) then the exact sum of the invoiced amount(s) should be withdrawn from the bank account.

If the client is paying in cash because there are insufficient funds in the bank then he should pay the cash into the company bank account as an injection of capital into the company and then withdraw what is needed to pay the invoiced debt in cash.

If the client is in trouble because putting the money in the bank will still not free sufficient funds to pay the invoice (For example if he is already over his overdraft limit) then it may be that he has had problems paying HMRC in the past?

It really is one of my bug bears that clients use the company bank accounts as though they were their own. They're not. As an owner the client has invested in the company and he then as director has a fiduciary duty of care for the company not dissimilar to the duty of care that one has for a child.

Just emphasise to your client that every penny spent by the company must be accounted for by the company beyond any reasonable doubt. Also, all invoices are to be made out to the company, not the individual.

In this instance, without further evidence to the contrary I would be wary of going up against HMRC because I think that you may find that the letter of the law if not the spirit of it is actually in their ball court rather than your clients.

Sorry that this one's a bit negative but hope that it helps to bring a balance to the arguments for and against the VAT refund,

shaun.

BackOfficeGroup · Guru

if the cash purchases can be backed up by receipts, which are to the name of the ltd co, then a vat refund should be due, regardless of how they were paid for etc etc

however, if you cannot show that the receipts were to the Ltd co, then you have a problem.

Unless you are 100% sure, HMRC can be very nasty in this area and I would not recommend going up against them unless you are sure.....

P

Shamus · Forum Moderator & Expert

Hi again,
just reread my note from last night. It probably comes across not quite as intended. The basic premise of the reply was to show what HMRC's thinking was in sending the letter that they did, and hence why it would be unwise to go up against them on this one as I'm pretty sure that you would lose.
I'm not agreeing that they're playing fair and goodness knows I'm sure that your client probably needs the refund in these very trying times for the building trade. I was just telling you why they're not going to give it to him.
I think that you can probably tell from my original reply that it's sprinkled with bitter experience!
Hope you have a good day,
cheers,
Shaun.

Zigs · Veteran Member

Hi

The cash receipts are not all in the name of the company, the majority are however there are over £1000 worth of receipts paid by cash for items purchased in b n q, which would not state who they are for.

Ive advises my client to deposit the funds in the business account and then use direct payment methods from the account. I understand that for the cash receipts if they are not addressed to a payee then they could be anybodys receipts etc looking at from HMRC poit of view.

Thanks for the responses

x

Shamus · Forum Moderator & Expert

Morning Zigs

Sounds good to me. That your thinking with the taxmans hat on is an excellent frame of mind to be in. There's another current topic on here on whether ICB courses are allowable where I'm arguing the point from HMRC's perspective. Its worth a glance even if the topics of no interest as the underlying principle is universal.

Main thing is to beat into your client the importance (for his pocket) of ensuring that there is an audit trail traceable back to the company bank account accounting every penny spent. Sounds as though your completely on top of that.

There might be problems with that £1k but you might get lucky especially if such is only a small percentage of the companies expenditure.

Good luck,

Shaun.