As HMRC’s latest tax initiative reaches its last few weeks, we recap on the scheme.
Since early July, HMRC have been targeting – via a series of direct communications – approximately 40,000 UK businesses who should now be VAT registered, having already reached the current VAT threshold of £73k. If you are an accountant, you could well have clients who’ve been contacted in such a way.
HMRC say that failure by these targeted businesses to register for VAT will result in serious implications. Put simply, if a business reaches the threshold and remains unregistered, HRMC will recoup the full tax owed and may charge a substantial penalty for non-disclosure.
However, as part of this brief ‘VAT Initiative’ period, HMRC are aiming to raise an estimated £600m from a voluntary disclosure process. The current campaign encourages those with outstanding liabilities to come forward and make a full disclosure in exchange for preferential settlement terms. It states that most disclosures will qualify for a 10% penalty, instead of the normal penalty of up to 100% of the tax, as well as the likelihood of the disclosure being accepted without undergoing any follow up queries.
After the registration deadline of 30 September 2011, HMRC has warned that it will start investigations into businesses that have not come forward, by making use of information compiled using ‘web-bot’ software. Using this software, HMRC can now more accurately pinpoint businesses that have failed to pay the right tax by matching a vast amount of data, enabling a fast and focused response to tax evasion. It highlights previously hidden relationships, uncovering anomalies between such elements as bank interest and property income.
What’s the process if your clients have been targeted under this initiative?
Firstly, the business will have to decide whether it wants to notify HMRC, or run the risk of carrying on unregistered. If the business decides to notify an intention to make a disclosure, it has until 30 September 2011 to do so by downloading and completing the VAT Initiative Notification Form. Unfortunately, the form can’t be filed with HMRC online, instead it must be posted.
The business then has until 31 December 2011 to provide HMRC with a full disclosure – by filling out a VAT1 form – and to pay the tax, interest and penalties. It’s vital for the business to include on this form the Notification Reference Number (NRN) they receive once the initial notification has been processed. Without the NRN, a business will not be able to take advantage of the lower penalties on offer as part of the initiative.
The facility also allows for the disclosure of additional, related tax liabilities, other than VAT. Again these can be disclosed with a lower penalty than HMRC would charge during an investigation.
How can Sage accountants help?
Although promoted as a straightforward process by HMRC, it is clear from the guidance there are a number of taxpayers and circumstances where the full benefits of the VAT Initiative may not apply. Businesses in such a position will be advised to contact their accountant.
You may not have any clients who’ve been targeted by the initiative, but we’d still stress the importance of any business to maintain accurate and complete bookkeeping records. Sage offers a range of solutions to assist, all of which boast fast, first-time online filing of VAT. Sage Instant Accounts, Sage 50 Accounts, and our online accounting solution, Sage One*, all offer comprehensive VAT management and online filing. For more information on VAT management software available for your clients, call us on 0845 111 1111 today or visit www.growgreenshoots.co.uk.
*online VAT filing facility offered in Sage One Accounts
Georgina Timothy, Sage Accountants’ Division Trainer