retrospective application for exemption

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hi All

I'm after anyone's experience regarding retrospective application for exemption for VAT. The background is that HMRC have opened an enquiry into a client whose turnover (according to the stat accounts) was greater than the threshold. However, this was due to turnover in 3 months being unusually high and not the typical turnover for this business. If we said that typically turnover was £6k per month from Jan 2015 - date, but in Jan - Mar 16 it was around £12k per month, we would have a situation in Jan 16 whereby the client would need to register for VAT although at that time they knew the increase was temporary and was not going to last beyond March 2016.

HMRC have allowed a retrospective application and I am looking for tips on how to approach this. If we look backwards from Jan 2016 then turnover is greater than the threshold and if we look forward on a rolling 12 month basis then turnover is above the threshold until Jan 2017 when the one off turnover is no longer part of the 12 month rolling average. What are HMRC looking for when assessing exemption from VAT, is there any stat or case law to support my client's position?

[les35]

Strictly, an exception (not exemption) from registration can only be made at the time the taxpayer notified HMRC of his liability to register. Case law is pretty consistent on this point.
In mitigation, HMRC operate a 'liable: no longer liable' concession which looks at historic turnover on a month by month basis. You could ask them to exercise this concession in your Client's favour.

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we have had the outcome of the review and have been advised that HMRC wish to assess the company over a period of 15 months without the need to register for VAT. The total assessment is £30k, which happens to be twice the annual profit before tax. clearly the company cannot afford to pay for this and, assuming they accept the assessment, would be insolvent.

My suggestion would be to cease trading, minute the decision and then the directors to proceed to wind up the company. the directors can always start a newco and carry on trading, there are no real assets in the business of note, a couple of pc's and that is about it.

My question is around HMRC and how they would view this approach....would they look to shift the assessment in any way given the director has common control?

[les35]

HMRC can require payment of Security by NewCo, since it will/may be perceived to be a 'risk to the revenue.' This is potentially serious as (1) it is a criminal offence to trade without providing such security, (2) an Appeal against such a requirment can only be successful if HMRC have acted unreasonably.
It is worth having a specialist look at the registration correspondence, to see if the assessment (and penalty) can be reduced. Even if the company is still put into liquidation, the amount written off may be lower, and therefore the Security issue easier to address.

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What would the security be for? HMRC accept that the business itself isn't trading above the threshold as of today and there are no grounds to believe it will trade above the threshold in the future.

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By the way, the company is not, and never has, been registered.