Tales from the phone helpline

Here are two sample questions submitted by accountants to the ICPA/Vantage helpline

Question: I have just prepared my clients 2017 year-end accounts and have found that, during that year, his turnover crossed the VAT registration threshold. He should have been registered from 1 October 2017. I also found that in May 2018 his turnover dropped below the deregistration threshold. What should I do?

Answer: You have a situation HMRC refer to as ‘Liable, No Longer Liable’ (LNLL) – this effectively means that your client was required to be registered for VAT at some time in the past but at some subsequent time in the past he was no longer required to remain registered for VAT.

You will need to write to HMRC’s VAT Registration and Deregistration Unit (VRDU) in the first instance to advise them of the date from which your client should have been registered for VAT and the month in which your client’s turnover fell below the VAT deregistration threshold. It would be beneficial to send you monthly rolling turnover analysis to demonstrate these dates to HMRC. The address for the VRDU can be found at section 17 of VAT Notice 700/1.

HMRC will take one of two possible courses of action, depending upon whether your client intends to charge to their customers the VAT that they should have charged if they had been registered at the correct time.

If your client intends to charge this VAT on to his customers, then HMRC will register your client for the period of time between 1/10/2017 and May 2018 so that he is allocated a VAT registration number to use on the VAT-only invoices he will need to raise to recharge the VAT. Your client will be issued a VAT return covering the whole LNLL period of time and will need to complete it as if he had been registered for VAT at the correct time; declaring the VAT due on sales but also claiming VAT on purchases and expenses made during the LNLL period.

If he does not intend to recharge the VAT (he may be a retailers or business that provides goods and services directly to the public) then HMRC will not register him for VAT and will simply deal with it by correspondence, expecting you to advise them of the amount of VAT due on your clients sales and of the value of VAT claimable on purchases & expenses during the LNLL period.

No interest will be chargeable to your client but he may be subject to a Failure to Notify Penalty for late VAT registration. 

Question: I have a client who died in July 2017 and I’m doing their Self Assessment Income Tax Return to the date of death. The client had a bank account where the interest accrued but was not paid until October 2017. Does the whole amount of interest fall within the Period of Administration because it was paid after the date my client died, or do I have to apportion it to and from date of death?

Answer: Interest is taxed in the year that it arises under Income Tax (Trading and Other Income) Act 2005/s370. For these purposes, interest ‘arises’ when it is received or made available to the recipient, it has been made available if it is credited to an account on which the account holder is free to draw. Therefore, in your case all of the interest will fall into the Period of Administration and nothing should be declared on the return that you are currently preparing.

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