HMRC and the 12 year old VAT debt: Every now and again, somebody ends up having to pay HMRC a lot of money which could easily have been prevented, because they’ve made one very simple mistake ……
HMRC and the 12 year old VAT debt. In one recent case, a company director’s oversight in 2002 means that he is now being chased by HMRC for a debt he could have avoided.
A company director (and company owner) has to pay £16,000 VAT for an incorrect VAT return submitted in 2002 by his accountants. Despite the fact that HMRC gave the director several opportunities to amend the return at the time, he took no action. HMRC didn’t chase the debt until 2011, which was too late for the director to amend the return. Now he’s left paying monthly installments of £750 for zero-rated construction work on which he didn’t charge VAT.
HMRC contacted the director on a number of occasions to verify if the return was correct in 2002/2003, but the director repeatedly referred them to the accountants. When the accountants didn’t return HMRC’s phone calls and contacted the director again, he simply replied that he’d “paid all the tax he owed” and refused to discuss the issue with them.
HMRC’s delay in collecting the tax contributed to the problem
If HMRC had followed their normal practice and tried to collect the debt in 2002 or at least within the following 4 years, the director would have realized that the return was wrong and asked his new accountants to sort it out. Another new accountant, engaged in 2011, knew nothing about the historic debt until the client called them and told them that HMRC now wanted him to pay the money.
The new accountants immediately submitted an amended return, hoping that HMRC would accept the amendment late because their (i.e. HMRC’s) delay in collecting the debt was a factor in the return not being amended at the time. HMRC refused to accept the amended return because it was out of time, despite many requests, including correspondence from the director’s MP. And because HMRC are technically correct in rejecting the amended return, it’s unlikely that an appeal to the Tribunal would be successful.
There’s no doubt that HMRC’s delay in collecting the debt was a factor in this case. But ultimately, it was the director’s failure to take responsibility to review or correct the return that has left him in this situation.
Whose responsibility is it when accountants submit incorrect returns?
Working with both business owners and accountants, I appreciate how much certain business owners expect of their accountants. Many business owners assume that their accountants will deal with every aspect of their accounts (and sometimes anything money related) once the engagement letter has been signed, regardless of what is or is not included in the engagement.
Of course, legally, the business owner, or “taxable person” is responsible for ensuring that any VAT or tax declaration is correct. And under the current misdirection regime, business owners who rely on accountants to submit returns on their behalf which are incorrect could also be regarded as negligent, which could lead to higher penalties.
The main factor is probably the old issue of managing expectations. Business owners looking to take on a new accountant will, of course, try to get the most for their money. They may not fully appreciate the implications of phrases such as “we will prepare tax/VAT returns based on the information which you provide…” in engagement letters. Accountants, on the other hand, hoping to acquire a new client, might promise, verbally, that they’ll “take care of everything” or “leave it all up to us”.
But the point of this blog isn’t about apportioning blame. It’s a reminder for business owners that even if your accountants complete and submit your VAT return, you are legally responsible to make sure that it’s correct and you really MUST take the time to check the return and make sure that you understand how the figures were calculated. This also means making sure that your accountants have all the information they need to prepare the return.
Either way, you don’t want to end up owing HMRC money because you didn’t make the time to check the figures.
Marie
August, 2014