Paying HMRC VAT despite not charging VAT

[Velodesigner]

Hello,

I'm a self employed designer and after my business growing quicker than anticipated I went over the VAT threshold for a period of 2 years withou actually realising and also having any knowledge or advice about the threshold. So I gave all my figures for that period to the HMRC and obviously none of my sales or invoices had me charging VAT. But now I'm told I have to pay the HMRC £23,000 of potential lost revenue to them. Is this correct even though I was never charging VAT? so in effect they are taking £23k of my earnings rather than the VAT I could have collected for them. It just seems very harsh. Any advice?

[les35]

If you were liable to be registered, then you owe VAT. So, in principle, HMRC are correct.
If your customers are in business, you could consider contacting them to pay the VAT; write a promotional letter to encourage them to do this.
And, have you reclaimed the input tax to which you were entitled?

[spidersong]

I'm not quite sure why you consider HMRC treating your income as inclusive of VAT rather than asking you to account for the VAT you would have charged harsh?

You've taken in £138,000, HMRC have treated this as VAT inclusive income (or should have) and so as though it's essentially £115,000 plus £23,000 of VAT. If you'd been properly charging VAT then you'd have taken £138,000 to maintain your income and charged 20% VAT so £27,600. I'm not sure why you consider it harsh that HMRC are charging you less than the VAT you could have collected, and just charging you VAT as part of the income you actually received.

Surely it would be harsh on everyone else if all the people who took steps to properly inform themselves of their legal duties in relation to their businesses paid £27,600 of VAT on their income whilst you didn't.

But as Les says make sure you review all the costs you had over the period to ensure that any VAT you paid suppliers is claimed back and check that you recover the VAT on any goods you had on hand at the point that you were required to be registered, although if they're doing their job correctly HMRC should have asked you for details of the VAT you incurred on expenditure and offset this from the VAT you failed to charge your customers.