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Ask Your Own Question, Chartered Certified Accountant
Category: UK Tax
Satisfied Customers: 4996
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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Vat problem Messed up returns - left off reverse charge

Customer Question

Vat problem
Messed up returns - left off reverse charge figures
Submitted: 2 years ago.
Category: UK Tax
Expert: replied 2 years ago.

Hello and welcome to the site. Thank you for your question.

You say you messed up returns by leaving off reverse charge figures. Please expand on this statement.

Many thanks

Customer: replied 2 years ago.
My business deals with digital products. All income comes via a payment processor who adds on VAT, where necessary, and then remits it accordingly to the appropriate EU govt. Business expenditure is mainly created by purchase of services from the US and a few from the EU. As regards ***** ***** of expenditure, I have accounted for the value of the inputs on the VAT return, but have not accounted for the reverse charges. I realise that the net difference to the vat return is zero and that I can add the correction to a future return. The problem is that I have a VAT check in four weeks time ... how do I handle the incorrect reporting? Thanks.
Customer: replied 2 years ago.
I have omitted the reverse charges since I registered for VAT three and a half years ago.
Expert: replied 2 years ago.

Thank you for your reply.

You should prepare a detailed schedule of transactions omitted from reverse charge calculations by quarter and volunteer this information to the Officer when he/she visits your premises for a check. This would help you in mitigating any penalties and interest that may arise resulting from this omission.

If I were you, be honest with the officer and make the officer aware of your course to action to rectify this error. If you have an accountant, you should ask your accountant to be present at the visit to ensure there is professional input on your behalf.

I would like to draw your attention to VAT Notice 735 Sec 8.6 here and in particular to this part "where you do not account for the reverse charge when you should, it is possible that you could be assessed for your supplier’s output tax, which you should have entered on your own VAT return. You might also incur penalties and interest."

From past experience I would recommend you stay calm and collective and cooperate with the VAT Officer.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 2 years ago.
Hi - thanks for the reply.
VAT Notice 735 Sec 8.6 - this seems to be UK domestic for•mobile phones
•computer chips
•wholesale gas, and
•wholesale electricity- none of which concern me.Apart from one person (not vat registered), all my transactions - business costs - are mainly US, with some EU items.
Overall, there is no net difference to my VAT returns and, fortunately, below the £10,000 threshold for reporting to HMRC. I read this:
Penalties can be charged if there are errors on returns or other documents which:
•understate the tax
•misrepresent the tax liabilityPenalties may also apply if your client doesn’t tell HMRC if an assessment is too low. This type of penalty is known as an ‘inaccuracy penalty’ and applies to the following taxes and duties ... etcAs I am under the £10k reporting threshold and am able to correct the returns on a future return, then does this mean that, even though I have messed up, penalties would not apply? Can you be penalised for errors during a time period when those errors could be corrected?Thanks for you help on this.
Expert: replied 2 years ago.

Thank you for your reply.

Penalties may not apply as not every inaccuracy will result in a penalty, as people do make mistakes.

You may find information on VAEC7670 helpful.. the link is here

I hope this is helpful.

If you are happy and there are no more issues I will appreciate if you would kindly rate/accept the service I provided to ensure I get credited for it by Just Answer.