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This is the first vat return he has to make since he officially opened the business in March. As I mentioned, he was able to claim around £15000 back at the end of February after paying a number of tradesmen but he wasn't actually trading until March this year.
I have calculated that he has around £12000 to claim back since March, although I think some of his invoices since March have gone astray so that might be a larger sum when I eventually track them down.I'm not sure if its relevant but he pays rent of £2500 per month on the premises.
ok, thank you.
Also we are so unsure of the vat on food. He doesn't pay it on purchase so does he have to charge it on sales?
Hi again.The first thing I would advise your son to do is to appoint an accountant. Businesses have so many compliance obligations these days and its easy to put off the work involved when you are busy running the business itself and before long you find yourself up against a deadline. Whilst an accountant will charge fees, he or she will keep a client up to date and take all the boring compliance work out of the business owner's hands. A good accountant is worth alot to a business.VAT returns are due quarterly for most businesses so its a little odd that you are about to submit the first one given that the business has been running for about 9 months. In most cases the returns have to be submitted online as opposed to on paper. There is some useful information on deadlines and online filing here.A business is just an unpaid tax collector for HMRC. I always advise clients that the VAT they charge is not their money and that, if at all possible they should hold it in a separate account from the business income. I realise that this can be difficult especially when a business is barely breaking even but if at least some can be put away, it may help to alleviate payment problems later on. It seems to me that because no VAT returns have been done since the business started there will be a sizeable liability which based on what you had tole me will be £44,000 (£56,000 less £12,000). Clearly, that is going to be a problem and I'd advise you to have your son contact the HMRC Business Payment Support Service as soon as the VAT liability is quantified and the VAT return has been submitted. Hopefully, he will be able to negotiate a payment plan with the tax office. You should read the notes here which deal with payment problems. You should take a look at VAT Notice 709/3 (June 2013) here which is aimed at those who run hotels and holiday accommodation businesses. Food supplied and intended to be consumed on the premises is subject to VAT. See sections 1 and 3 of VAT Notice 709/1 (October 2013) here. However, this is a complex area and I'd advise you as I did earlier to appoint an accountant to put you on the right path in this regard.
If the landlord charges VAT on the rent, then this can be reclaimed in the VAT return.
I hope this helps but let me know if you have any further questions.
Many thanks for your response. Although very comprehensive, I was really hoping that we were wrong about him owing £56k less any vat he has to claim back.
A payment plan is one way round it but whilst paying that back he also has to set aside vat for further returns so I can't honestly see the business being viable.
It does seem so iniquitous that he has put all of his own money into it, barely taken an income and is in such a bad position already.
He has said that if he does have a large amount to pay, he simply can't carry on trading.
If he ceases trading or closes the business down, what will be his position regarding any vat he owes? It is a limited company.
Yes, thank you for that. He certainly hasn't been reckless or negligent, quite the reverse but obviously naive about vat issues.
It seems almost unbelievable to me that someone can spend £250k (earned from a previous business) on a hotel, refurbishing it to a high standard, creating jobs in the area whilst barely taking an income for himself and this is where he is after only 8 months.
Thank you anyway for your help.
Thanks. I'm only sorry I cannot tell you something else.