 VAT registration doomed to confuse not collect
5 July 2011: PKF Accountants & business advisers has warned that HM Revenue & Customs’ (HMRC) ‘VAT Initiative Campaign’, which was launched today, is more likely to confuse business owners and the self-employed than to collect significant amounts of unpaid tax.
HMRC is writing to 40,000 targets to offer them an amnesty if they come forward by 30 September and apply for VAT registration by 31 December. The incentive for business owners to own up is that there will be reduced penalties on the VAT that they should have paid: no penalty for those who should have registered for VAT since 5 July 2010 and 10% for others. However, HMRC is reserving the right to charge more if a business “knew [it] should have registered but decided not to come forward” and does not say what penalties it will charge on other tax arrears that individuals have to disclose to use the amnesty.
John Cassidy, tax investigation and dispute resolution partner at PKF, comments: “HMRC has finally realised that, by simple data analysis, it can identify individuals and businesses that have an annual turnover above the annual VAT registration threshold but are not VAT registered. But it is asking those who come forward to disclose any other tax arrears at the same time without knowing how much it will cost them.”
Lisa Topliss, VAT partner at PKF, said: “So far, HMRC has not made it clear how it will decide whether or not an individual ‘knew’ they should have registered for VAT in the past. Will it take an extreme view that anyone with Internet access should have known they need to register for VAT? If so, virtually no one will qualify for the low penalty rates."
“Alternatively, those who have declared business income on an income tax return in the past might be worse off than those who have never filed any returns at all – because HMRC could argue that if you knew enough to register for income tax you would have known you also needed to register for VAT!"
“HMRC’s guidance notes say people who use this initiative will ‘know how you will be treated’ but at the moment that is just not true. This campaign may be intended to bring hidden businesses in the unofficial economy into the tax net but it is unlikely to succeed unless HMRC make it very clear how much coming clean is going to cost.”
John Cassidy added: “Anyone who owes VAT or other taxes on undeclared business income should own up now before HMRC catches up with them. But if you do need to put things right, you will certainly need to take advice from an expert on how much it is going to cost you.”
Ends
For further information, please contact: Andy Konieczko on 020 7065 0537 or andrew.konieczko@uk.pkf.com or Jane Soares on 020 7065 0135 or jane.soares@uk.pkf.com
Notes to Editors:
1. PKF (UK) LLP is a leading firm of accountants and business advisers with more than 1,500 partners and staff operating in 23 offices in the UK mainland firm, incorporating a wholly-owned financial planning company and associated offshore practices. The firm specialises in advising growing and entrepreneurial/owner-managed businesses, AIM and fully listed companies, and also has extensive experience in the public and not-for-profit sectors. Principal services include assurance and advisory; taxation; consultancy; corporate recovery and insolvency; corporate finance and forensic. The firm has particular expertise in advising sectors such as hotels and leisure; mining and resource; public sector; real estate and construction; professional practices; not-for-profit; and medical. The firm’s web site is www.pkf.co.uk
2. PKF (UK) LLP also offers financial services through its FSA authorised company, PKF Financial Planning Limited. PKF (Isle of Man) LLC is a limited liability company registered in the Isle of Man. PKF (Guernsey) Limited is incorporated in Guernsey.
3. PKF (UK) LLP is a member firm of the PKF International Limited network of legally independent firms. The PKF International Limited network has around 17,600 people operating in 120 countries around the world.
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