DSH Chartered Accountants and Business Advisors has issued a stark warning about the perils of poor bookkeeping in light of a recent case from the Tax Tribunals.
The case highlighted the brutal financial impact on the owner of a small flat roofing business, whose turnover hovered around the VAT registration threshold (£79,000 from 1 April 2013, £77,000 for the preceding year), for some time.
Although the businessman had a VAT registration liability in 2008, the fluctuations in his turnover in subsequent years were such that he was either not liable or liable but with the possibility to seek exception from registration.
His difficulties with HM Revenue & Customs (HMRC) arose from inaccurate bookkeeping and late notifications to HMRC. Following an assessment by HMRC, he was left with a liability to pay the VAT amounting to tens of thousands of pounds, which he had not collected from his customers, and was unlikely to be able to collect retrospectively, along with a disproportionately large late registration penalty of £15,000.
The way in which VAT law works is such that although the Tribunal had no jurisdiction to help, the fiscal impact on the businessman was so bad that it even shocked the Judge, who said “…we are extremely troubled by the harshness of the practical effect…if it were to be enforced in full by HMRC”, and went on to urge HMRC to exercise discretion to avoid the “…wholly disproportionately harsh consequence…” of following the letter of the law.
Martin Dane, Head of VAT and Indirect Taxes at DSH, said: “This case is a powerful demonstration of how critical it is for small businesses to keep their record keeping and accounts up to date, to monitor historic turnover levels each month, and to act immediately when turnover limits are reached.
“VAT is actually a simple tax, it is its application that can be complicated, creating pitfalls and problems for the unwary business owner and manager. In practice, routine record keeping and prompt action will help avoid consequences which, at worst, could leave a small business destitute and forced to close.”
For a free no obligation meeting to see if DSH can identify potential problems and savings with your VAT situation please talk to Martin Dane, Head of VAT & Indirect Taxes at DSH on 01622 690666.