VAT can be a complicated business

A lack of clear advice and excessive accounting bills on a regular basis led this
four-partner dispensing practice to appoint AISMA accountant Foxley Kingham on
the basis of a fixed fee.
Early on in the process of preparing the first annual accounts Foxley Kingham noted
that the VAT records and results were significantly out of line compared to their
other dispensing clients. On reviewing the calculations, Foxley Kingham’s specialist
VAT manager advised that the complex partial exemption calculations, as required
by dispensing practices, had been incorrectly performed, not just for the previous
year but for the past four years since dispensers were forced to register for VAT.
There were significant overclaims in each month’s calculations, no adjustments for
breaching the “de minimus limits” and no annual recalculation. An initial estimate
showed the errors could result in the repayment of VAT, interest and penalties of
around £200,000.
Chris Howe, director at Foxley Kingham, says: “When we questioned the practice
manager we discovered that the practice had obtained a spreadsheet template from
another practice and had used that without reviewing its results, with disastrous
consequences.” The practice had also been advised by their previous accountants
that due to the complexities of VAT registration their annual accounting fees would
need to be increased by £1,800. Consequently the practice assumed that the
accountants would be thoroughly checking the VAT workings when they prepared
the annual accounts. It was clear that no such checks had taken place in any of the
previous four years.
Foxley Kingham advised:

  • The VAT calculations needed to be re-worked, and HMRC advised in writing of the significant overclaim
  • That VAT repayment over 12 to 18 months should be requested from HMRC, with drawings restricted accordingly
  • The retired partner would need to be advised that a contribution representing his past profit shares of the overclaim would be required
  • The new partner should be informed that only a minor contribution would be required as she had only recently joined the practice
  • That tax returns would need to be revised downwards for the past two years and recoveries of income tax made
  • That superannuation certificates would need revision as pensionable profits had been overstated by the excessive VAT claims
  • Ongoing monthly VAT workings should be reviewed by Foxley Kingham until the practice was confident in its abilities
  • That Foxley Kingham would perform an annual VAT review on the preparation of each years’ accounts.
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  • Liz Densley
  • AISMA Secretary
  • Honey Barrett Ltd
  • 48 St Leonards Road
  • BEXHILL ON SEA
  • TN40 1JB
  • T:01424730345
  • F: 01424730330