The taxman issued a press release today reminding “VAT rule-breakers” that they have until 31 December to complete the VAT registration process under a special HMRC campaign.
H M Revenue & Customs launched its “VAT Initiative” this July year. Businesses trading above the VAT registration threshold (currently an annual turnover of more than £73,000) but who had not registered for VAT could use a special arrangement to put their tax affairs straight.
HMRC warn that they have been identifying those who did not come forward. The main source of information for the taxman will be the tax returns that businesses are already sending in to HMRC, or accounts sent to Companies House. Oddly, in the past, HMRC has made no attempt to compare the turnover declared for Income Tax or Corporation Tax purposes to the turnover declared for VAT. It is a very simple matter for HMRC to look at the turnover figures on the accounts sent in to them, and see if anyone trading above that level has or has not registered for VAT. The situation for HMRC is then usually going to be black and white. The evidence of the trading figures would have been supplied by the trader themselves. If HMRC should choose to prosecute the evidence hurdle would be extremely low for HMRC, and the chances of successful prosecution therefore extremely high. The taxman warned that anyone who does not disclose shortly is risking: “Substantially higher penalties and even criminal prosecution”.
Under the terms of the VAT Initiative, those who have notified their intention to take part must register for VAT by 31 December 2011. They will then receive their VAT registration number and instructions on how to complete their first VAT return. Once this has been submitted most will face a lower penalty rate of 10 per cent on the VAT that has been paid late.
More crucially, and potentially more difficult, is the fact that HMRC also expect a disclosure to be made of any earlier year irregularities. That does not only include the VAT that should have been paid, but also any other direct tax or other tax failings. The taxman says: “I urge anyone with unpaid tax to use it to come forward and avoid potentially lengthy and costly investigations. The penalty they will pay will still be lower than when HMRC catches up with them. Those coming forward are also invited to disclose any other tax arrears. Where they have to pay a penalty on undeclared tax other than VAT, this will be lower than the usual penalty of up to 100 per cent of the tax owed charged on those who fall outside this opportunity”.
The VAT registration threshold is currently £73,000 turnover; on a rolling annual basis. In previous years it was: 2006/07: £61,000; 2007/08: £64,000; 2008/09: £67,000; 2009/10: £68,000; 2010/11: £70,000.
Although it is now too late to register for the VAT initiative there are still substantial benefits to be had by coming forward and making a full early voluntary disclosure. Prosecution can be averted. Low penalties can still be achieved. An intrusive and costly enquiry can be avoided.
How can Lynam Tax Investigation Experts help me?
Lynam Tax partners have a vast amount of practical experience in managing tax investigations and tax enquiries. We can advise you on the best course of action and if appropriate, help you manage any necessary disclosures, in order to obtain the optimum outcome for you, your business and your family.
*For a free, private, no obligation consultation, call Paul or Gemma Lynam today on 0845 643 9997