How to avoid unnecessary tax penalties and complications


I recently read an article which highlighted the penalties that HMRC could impose should a business fail to register itself for VAT within the set timescales. Many people would agree such penalties are justifiable in terms of loss to the tax payer’s coffers.


This led me to ask the question:


“Can penalties be imposed if a business simply fails to notify HMRC (specifically the VAT section) when there has been a change in circumstances?  An example of this might be where a sole trader incorporates into a limited company.”


The answer


Even though there may be no tax loss the answer is yes, because the old business failed to register the transfer of the VAT number as a going concern and the new company has failed to register itself for VAT.


I think this serves as a reminder that whenever any individual, sole trader, partnership, company or any other type of entity has a change in circumstance it’s important to both review their tax and legal obligations and seek professional advice.


The list of what may need considering is long but some of the more common things to remember should there be a change in ownership of a business, a change in directors or a change in family circumstance (birth, death, marriage, divorce) are listed below:


– All HMRC offices (VAT, Corporation Tax, PAYE, Income Tax) need to be informed if a business moves from being a sole trader/partnership to a limited company


– HMRC should be informed when a new company is set up, even more so when it begins trading


– If an individual becomes a Director of a company for the first time HMRC need to be informed


– Insurance should always be a consideration if there is a change in circumstance or ownership


– Where there is a change in ownership consider whether the partnership or shareholders agreement need changing


– A change in family circumstance, or a change in assets, should make you ask yourself “Does my Will need changing?”


The key message is that consideration is given and advice is sought at the earliest opportunity.  A professional advisor will not just help you avoid the pitfalls but may also be able to help you mitigate any penalties that may arise.