Note of a meeting with new client Christine Newman.
Christine purchased the leasehold of a ladies hairdresser two years ago. She has made quarterly VAT returns ever since she took possession of the shop. The VAT returns are pretty much identical for each quarter of the last two years.
Christine runs a small hairdressing salon with a declared turnover including VAT of £1,200 per week. Vatable supplies are about 10% of sales inclusive of VAT. Christine is now in trouble with HMRC; during a recent VAT inspection the appointment book for her business was analysed by the VAT Inspector. The Inspector then looked at her price-list; multiplying the number of appointments by the price of items on the price-list. The VAT inspector then told Christine that in his opinion the correct level of turnover that should be declared was £1,500 per week. This figure has been accepted by Christine.
He went on to tell Christine that this estimate was based on returns from the previous occupant of the property also a ladies hairdresser. He went on to say that the figures on Christine’s business were somewhat out of line with similar businesses which is what had triggered the VAT inspection in the first place. Christine has now received a demand for arrears of VAT based on these figures. A tearful Christine advised that the correct level of vatable turnover should be £1,800 per week.
Christine went on to say that as well as lying about the vatable turnover she had understated the input tax paid. Christine tells you she has thrown away many purchase invoices.
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