Quick VAT question

[john_p]

We use a number of people to resell our services. We send statements, they invoice us (with or without VAT dependent upon their VAT registration status)

Recently one has become VAT registered, and has said we need to pay him the VAT for any invoices he has sent us (without VAT) for each monthly invoice approx. 6 months previous to his becoming VAT registered.

I am 99% sure this is not correct - my first inclination is that he is trying on some sort of scam. Can someone please confirm for me

I will check with the VAT office anyway

[vex]

I think he may have the wrong end of the VAT stick.

I am no accountant, but when I became VAT registered I could claim VAT back on services I had bought for up to 6 months before VAT Reg date and 3 Years on goods in use within the company.

Cant see what use asking you to pay VAT on the last six months would have, it would give him more money initially but then the VAT man would want it at the end of the quarter.

Happy to be flamed on this if I am wrong!

[john_p]

Yeah my understanding is that you can reclaim VAT you have paid for a period before registration. Even if we were to pay him the "previous" VAT he would have charged he would have to pay it straight onto HMCE .. which makes me wonder if there is something dodgy afoot

[lotusfan]

i was warned when i started contracting that if you were not registered for VAT and then exceeded the threshold over the year, you had to register and then go back and collect the VAT, this might be whats happened. I'm not sure as to the validity as i registered anyway

[Eric Mc]

I reckon he went over the registration threshold a while ago and has now been told that he must pay over to HM C & E the VAT on Sales billed from the date he SHOULD have registered. He has two choices:

i) he can absorb the Output VAT in the invoices he has already billed i.e, treat them as if the total he charged to you originally was VAT inclusive. That means that if he had billed you (say) £11,750.00, he owes £1,750 to the VAT man. As you have presumably paid him the £11,750, he has had the cash from you and should be able to, in theory, pay the £1,750 VAT without asking you for more money.

ii) alternatively, he can treat the original £11,750 invoice as VAT Exclusive. This gives rise to an additional VAT liability of £2,056.25. He would therfore owe £2,056.25 to the VAT man. He therefore would have to bill you the missing £2,056.25 VAT.

In both cases you would be able to claim back the additional VAT as an extra Input VAT claim - £1,750 in option i) or £2,056.25 in option ii).

It looks like he is trying for the second option - otherwise he will have to take the VAT amount due on the chin and it will make a real dent on his income.

[john_p]

I think this is sorted now, the VAT number was actually "issued" on the 1st Jan but he only found it out last week! So he wants to add VAT onto the previous invoices he has sent which I have checked with the VAT office and this is OK. However he was also trying to get us to pay VAT from invoices dated before the 1st Jan ..

[Eric Mc]

In a way, it's academic because, having paid him the VAT, you can instantly claim it back again. Just make sure you match the timing of the payment to him with the payment to the VAT man. The two cheques cancel out and have no detrimental impact on your cash flow.