HMRC's VAT Initiative comes to an end today 30 September 2011. The scheme allows businesses who have not registered for VAT having passed the turnover threshold (currently at £73,000) to pay an extra 10% of the VAT owed rather than the maximum penalty of 100% (that is the VAT due, plus the same again).
It may sound harsh, but the penalty is quite reasonable, especially as it does not matter how far the business turnover has exceeded the threshold. If the Revenue has something to give away - my motto is - take it! This is not exactly free, but it is close.
The accounting press indicates that many businesses will not take up the offer (I guess many reasons are to bear), and it is feared that as a result many businesses may go bust. There is evidence from the Federation of Small Business that two in three Start Ups fail in their first year, which makes sad reading for us accountants. We want businesses to do well - believe it or not - it makes us happy. Not only because a successful client (usually) means a successful accountant, but I am genuinely happy when my clients are doing well, when they know what their business taxes are and can face it head on.
It will be no surprise that some of the reasons for start ups going under in their first year is poor accountancy support and improper record keeping. I have blogged about this already and can't say enough how important proper record keeping is for your business.
HMRC has apparently sent out 40,000 letters to targeted businesses and hopefully this will generate some response to take up the offer. It is certainly not a time to bury the paperwork hoping to get back to it. Of course many businesses will not get a letter, and may not know about the initiative, thereby losing out on the opportunity to pay only 10% on top of the VAT due. This is when you need to get in touch with your accountant.
Many businesses get a bit confused as to what makes up the £73,000 and hence may think they are nowhere near this threshold. (Sorry to keep bleating on), but this is where proper record keeping will become useful. The £73,000 is based on your VAT applicable sales/income before you take off anything. So it is not difficult to get to £73,000 fairly quickly. If you make sales of £4,000-£5,000 per month within a year and three months you will be at the threshold.
The next thing you need to watch out for is if you have multiple businesses. It is possible that the sum of the sales/income from these businesses could put you over the VAT threshold if all your business is conducted as a sole trader.
The Revenue is determined to get behind business record keeping, and this VAT offer is certainly worth taking up, so make sure you look into your VAT affaris and find someone who can help.
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