MT Expert - Finance: Playing catch-up with VAT

It's not too late to register for VAT. Do it now, before the taxman comes knocking on your door, say this week's experts...

by James Hurst and Heather Taylor
Last Updated: 08 Jul 2011

HMRC has previously offered opportunities to specific groups of taxpayers who had either "forgotten to join the club" or who had understated what they had returned. This has been very cost effective for HMRC, offering favourable terms for disclosers but threatening big sticks for those who do not regularise their affairs.  This has enabled several taxpayers to wipe the slate clean with HMRC while paying a much lower penalty than if they had waited for the taxman to catch up with them.

This latest opportunity, "The VAT Initiative", deals specifically with taxpayers who have not registered for VAT but who are trading beyond the VAT threshold, which is £73,000 per annum from 1 April 2011 and was £70,000 for the previous year.

The initiative gives taxpayers who have breached the registration limits but who have not yet registered, the opportunity to notify HMRC between 5 July 2011 and 30 September 2011 that they want to regularise their affairs by registering under the initiative. Taxpayers then have until 31 December 2011 to submit their first VAT return for the entire unregistered period and pay over all back taxes due. HMRC will then levy a penalty on the late paid VAT. This initiative offers the substantial carrot of penalties limited to a maximum of 10% rather than the penalties of up to 100% which HMRC can otherwise impose. Taxpayers who qualify for the VAT Initiative can also include any direct tax problems with their disclosure and get the same terms for all underpaid tax. These terms are potentially even more generous for those who have long term non-registration issues than those offered earlier this year in the Plumbers Tax Safe Plan.

However, this opportunity is not a full amnesty. There will still be penalties to be paid by those who take part, even if they are much lower than would otherwise be due; and the VAT Initiative does not offer a guarantee of non-prosecution for serious offences.

It is also not available to any taxpayer who is already under enquiry by HMRC, or to anyone who could have come forward under the other special opportunities offered during the past few years to Plumbers, Doctors and Dentists and to taxpayers with offshore bank accounts. For taxpayers in those groups, the special incentive of the 10% penalty is not on offer under the VAT Initiative, but they can still get a much better deal if they come forward on a voluntary basis rather than wait for discovery by HMRC.

HMRC announced in May 2011 that it intends to target three other specific groups during 2011/2012: private tutors and coaches, tradesmen other than plumbers, and those trading in the e- marketplace. It has not been confirmed as yet that these groups will be offered the same terms as the VAT Initiative or the Plumbers Tax Safe Plan before HMRC launches a campaign of investigation into their activities.

However, the VAT Initiative may well apply to taxpayers in these groups if they have not registered for VAT, in particular to the e-marketplace, who may not appreciate that their turnover includes postage etc. and not just profit, and who may have exceeded the registration threshold. They would be well advised to opt in to this opportunity now whilst favourable disclosure terms are on offer.

James Hurst is avpartner at Grant Thornton's VAT Group and Heather Taylor is senior manager at Grant Thornton's national tax investigations group

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