UK Tax Questions Answered | Late VAT Registration

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Here is our latest tranche of UK Tax Questions Answered. Each question is from a Tax blog reader which will hopefully be relevant and of interest to you

Should have registered for VAT 17 years ago
Winding-up limited companies
HMRC Compliance check
Heavy-handed DMB
Are gazebos tax deductible?

Should have registered for VAT 17 years ago

Question:

Mine is a simple one-man band business (I make cages for parrots) and I recently received a letter from HMRC, saying that having done a routine check on my last Tax Return, it’s clear that I’m over VAT registration limit. So I checked back over previous years and it appears that I’ve consistently been over the limit since 1999. I’m now 71 and was about to retire, but I have worked out that 20% of my sales over the years could amount to possibly £85k in VAT. Is there anything I can do, I’ve put a bit aside but nowhere near £85k?

Answer:

Yes you have a problem, buts it’s nowhere near as bad as you believe. For a start, all of the VAT you’ve incurred paying for materials and services (e.g. telephone/internet) can be used to reduce what you owe. Plus, the impact of VAT will have the knock-on effect of reducing the declared taxable profit and it is almost certain that you’ve significantly overpaid Income Tax/NIC consistently over the years. HMRC should allow a set-off between the Income Tax & NIC overpaid and the net VAT underpaid and I suspect that you’ll end up owing a relatively modest amount.

Winding up limited companies

Question:

I’m the sole Director of a limited company and have suffered from ill health over recent years; as a result I have very limited funds and want to dissolve the company with the least expense and inconvenience. The only possible liability is a modest amount of corporation tax. What is the best way to proceed please?

Answer:

The official advice is to cease all trading and have Accounts prepared to the year-end after cessation, submit to HMRC and pay any Corporation Tax and then apply to Companies House using form DS01 for the company to be struck off.

However, if you simply send in form DS01 (+ the fee of £10), Companies House give notice to HMRC that they’ve received a winding-up request. This then puts the onus on HMRC to incur the costs of a winding up petition if they want to object, but if you communicate and explain the position they will rarely do so in practice. So all it has cost you is £10.

HMRC Compliance check

Question:

I have unfortunately been chosen for a HMRC Compliance check of my 2015 Tax Return, which was based on the accounts period 1st November 2013 – 31st October 2014, using a cash accounting basis as I’m a small builder on CIS deductions. My accounting year has always been the same since I started nearly 20 years ago. I was asked specifically to provide evidence of a new van purchase (5th December 2013 – cost £22.5k).

The Compliance officer investigating the case has written stating that he was disallowing the van purchase as he was investigating the tax year ending 5th April 2015 and the van purchase was not in the tax year being looked at. Is he correct and why do you think they’ve picked on me?

Answer:

HMRC have probably checked on you because they’ve done a routine check and have on picked up discrepancies between their records of CIS payments to you, which are inconsistent with your claim for tax deducted in the year. The CIS system is based on the normal tax year, which is why the inspector is correct that the claim for the van should not be on the 2015 Tax Return as it was not purchased in the tax year ending 5th April 2015.

This issue has arisen because you’ve not an accountant and don’t understand the rules governing the Construction Industry Scheme. It’s highly unlikely that the inspector will waste time on going back over previous tax years to correctly allocate the CIS payments, as it’s your mistake that has given rise to the problem. So if you want to get the tax relief on the van (around £6,500 in tax/NIC) my suggestion is to immediately appoint an accountant to sort this mess out for you and this should also result in HMRC leaving you alone in future.

Heavy-handed DMB

Question:

Last year my tax return went in on time and I paid the tax due and two months later I received a tax statement showing that I owed £87, without making clear why there was this additional amount. I telephoned HMRC and after a considerable wait, I spoke to someone who said they would look into the matter. As I assumed it was an error, I promptly forgot about it until last week when an extremely rude and aggressive individual, who said he was from HMRC’s Debt Management and Banking section (DMB) threatened further action if I didn’t pay £100.72 “now”. He also said that interest will be charged on the interest in the event of further delay. Can they do this, when they haven’t got back to me on my telephone query?

Answer:

I have to say that your case is not unique and it appears that the insensitive goons from DMB appear to be adopting an increasingly heavy-handed approach at the moment. In view of the petty amount involved, which in the past would have been simply added to next year’s tax bill, their actions are clearly over the top. Also the DMB goon was wrong to say that interest can be charged on interest, this cannot happen.

My advice is to telephone the call centre again and ask what action (if any!) has been taken. They’ll probably try and fob you off with the same platitude given as before, but stand your ground and request that they agree to suspend all collection action whilst looking into the matter and ask for a reference number for the call which makes that person accountable, which normally ensures that they’ll get off their fat backside and actually look into the matter properly.

Are gazebos tax deductible?

Question:

I’m a mobile mechanic and the seemingly constant rain we’ve been having in recent months has affected my business as it’s difficult to work on a car engine when its ‘hissing’ down. Someone suggested that I buy one of those heavy plastic temporary gazebos to work on cars when it’s wet, but if I do will HMRC allow it?

Answer:

Whether an item is deductible or not largely depends on its use and given your profession, I really don’t think that you’ll have a problem with HMRC.