As I present to accountants around the country I’m always pointing out that when it comes to professional indemnity insurance claims in relation to vat are high up there in terms of numbers of claims and the amounts paid out.
Why is the incidence of claims I relation to vat on the rise? Well for me the answer is that Vat has since it’s inception masqueraded as a “simple tax” and for the most part this appears to be the case and yet over the years as the thickness of the annual Vat text books have grown and grown and the differences between Zero Rating and Exempt, Confectionery and Cakes and everything Land and property have become more and more blurred and a staple at the tribunal so the mistakes have flowed.
As a minimum clients will look to claim from you any monies lost as a result of bad or inaccurate advice and of course they will also look to cover all costs incurred at establish and prove their loss. When a claim is made regarding Vat it is usually for large sums as Vat is a turnover based tax not a profit based tax so the sums can soon mount up.
So if you are not sure what rate of vat to charge or if a land and property transaction has you scratching your head vat wise or you are not 100% sure about the vat treatment of management charges then “don’t guess to impress” because if you are wrong then a large hit on your Professional indemnity Insurance is heading your way and it will cost you in terms of increased future premiums and loss of professional reputation.
When in doubt over vat seek specialist advice.
The above was my blog from June 2018 and now 18 months on I revisited the stats for the ICPA group Professional Indemnity scheme and still number one ranking claim is Vat. The highest incidence is virtually equal between anything to do with Land and Property and failure or late registration.
Land and Property is an absolute quagmire to negotiate and usually involves significant amounts of money which means if the Vat treatment is incorrect the claim is going to be for a large amount. Land and Property is so involved that in our practice the moment it raises it’s head we are in touch with our Vat support and make sure that we have the very best advice for our clients and yes that comes at a cost to us and ultimately them but as I point out to the client expert advice comes at a cost but that cost is actually priceless and we make it plain it’s not a matter for debate.
The other large claims area is registration issues whether failing to register in time or never at all which again usually means a big loss of revenue to HMRC and as such a big claim. I often scratch my head as to how these claims are still being encountered because after all we do know the registration limit don’t we? In fact I would suggest that every member of staff in every practice knows the vat registration limit it’s like knowing the basic rate of tax personal and corporate we know it. So how are these cases occurring? I suppose it’s the age old “Wood for the trees” and in each case the practice were duly mortified that it had been missed so please make sure you and your staff don’t miss the “Raging ****** Obvious”
I’m still saying it and it’s still true “don’t guess to impress” especially regarding Vat.