VAT misstep

January 23, 2013 6:04 AM

UK tax filter. Help, I registered for VAT by accident and I made a wee mess. How do I best get out of it?

I registered as a sole trader a few months back and then I made a series of clumsy mistakes.

Mistake 1 was I registered for VAT. But the business earns practically nothing and was not setup with an expectation to pass the VAT threshold anytime soon. I mistakenly assumed it was necessary to have a VAT number for invoices.
Mistake 2, when a VAT return was due, I filled in £60 online (21% of pocket change made during that period). I stupidly assumed filling in this small amount would result in a "No VAT due" calculation since the business earns well under the threshold of £18.000 and I never actually charged VAT from anyone.
Mistake 3, I should have kept at least some records of expenses, which I now could use to offset against that.
Mistake 4, I panicked and filled in a second return as a "NIL" return, i.e. £0 due, which someone from HMRC told me on the phone is not correct and could lead to penalties.

In any event I do seem to have managed to deregister for VAT.
Would it be worthwhile to write a grovelling snail mail letter to the VAT error corrections department to somehow amend these returns I sent online. How would I best explain this to them?
Or should I work a day to pay £60 for mistakes which I do admit were amazingly dumb, so I would bite the bullet if I have to?

I thought I'd ask for help here first so I don't mess this up any further. Which one seems the more successful strategy to you, writing to VAT error correction, or just paying up and hoping that this was it? It hasn't been a month yet since they sent the first invoice, how long do I have left to write to VAT error correction? How do I best speak to HMRC?

I know I should buckle up and spend a week reading through GOV.UK websites but to lie down in a dark room is all I've managed so far, so any suggestions and pointers to resources appreciated. Thank you!

posted by yoHighness to work & money (5 answers total)

Call and talk to them. HMRC is very very good about not collecting money it doesn't deserve. Ridiculously so in fact. I once registered as a sole trader far too early before my business got off the ground and they refunded everything up to the point where I actually started earning after a phone call about an other issue. I didn't ask for it - they just offered! (They don't expect you to be an expert in taxation either - plus their website is sometime out of date and can have conflicting information because of tax law changes so don't put too much effort into sorting it out before hand).
posted by srboisvert at 6:21 AM on January 23 [1 favorite]

Seconding calling them. They're good.
posted by devnull at 7:10 AM on January 23

Thank you, that is encouraging. I have phoned them twice so far, and I have been told as I registered voluntarily and declared amount x, I am now liable to pay. And to write postally to the VAT error corrections department.

However I can also call the number on the VAT invoice but here I imagine I will be strongly advised into settling up first. Thank you for all further suggestions, otherwise I will try to call them again.
posted by yoHighness at 7:14 AM on January 23

Seconding srboisvert -- phone them. I've found them to be helpful and understanding. Once I missed out on a rebate of about £100 because I hadn't ticked the right box (my fault, the instructions were clear). The (abbreviated) conversation was something like ‘Um, I think I should have £100’. ‘Ah yes sir, looks like you forgot to tick box QFB-22XB in form FF-24 subsection 8B. We'll get that to you right away.’

It might be worth sending the letter as well because that will enable you to set things out more clearly. I'd aim for ‘apologetic’ rather than ‘grovelling’; it's not like you shot their dog or anything. But phone the helpline first: it's what they're there for.
posted by pont at 7:17 AM on January 23

Did you make it clear that you had not charged anyone the 60 pounds?

I'm not familiar with the VAT, but I do work in sales tax. As a pass through tax, it is expected that you will remit all taxes collected, even if they are collected in error. While tax laws differ from country to country, it is a basic characteristic of transaction taxes (similar to most income taxes being marginal and progressive). That might explain why you had a different outcome with your discussion with the HMRC.
posted by politikitty at 10:15 AM on January 23