The Importance of Understanding VAT: How One Business Faced a £150,000 Bill for Late Registration

Introduction

VAT is one of the most misunderstood areas of business tax. Many entrepreneurs think it’s something only larger companies need to worry about, or assume their accountant will deal with it. But the reality is simple: if you go over the VAT threshold and don’t register, you are personally on the hook for the VAT — whether you’ve charged your customers or not.

In this case study, we’ll explain VAT in plain English and show how one client faced a £150,000 liability because their previous accountant failed to act.

What VAT Really Means (Explained Simply)

VAT (Value Added Tax) is a government tax charged on most goods and services. Here’s how it works:

• The standard VAT rate is 20%.

• If you quote a client £1,000, you should actually be invoicing £1,200 (£1,000 + £200 VAT).

• That £200 is not your money — you collect it on behalf of HMRC and pay it over in your VAT Return.

👉 If you don’t charge VAT when you should: HMRC will still expect the £200, but it comes out of your own profit.

So instead of taking home £1,000, you’re really only left with £833.33 once VAT is factored in.

That’s why not registering or not charging VAT is effectively the same thing — you end up absorbing the 20% yourself.

Case Study: £150,000 VAT Liability Uncovered

A client came to Wexley & Associates after feeling they weren’t receiving sufficient advice from their previous accountant.

When we reviewed their accounts, we found:

• They had crossed the VAT threshold more than two years earlier.

• Their previous accountant had never registered them for VAT.

• They had continued trading without charging VAT on sales.

The result? HMRC issued a backdated VAT bill of £150,000.

Despite being profitable, the client had no reserves for such a sudden liability. The bill was so large that they were forced to sell their home and downsize to meet the demand.

Why This Happened

This case highlights two critical VAT truths:

1. Late VAT registration = huge liabilities.
   HMRC backdates VAT from the date you should have registered.

2. Not charging VAT = losing 20% of your profit.
   If you don’t add VAT to your invoices, you pay it from your own pocket.

In both cases, the result is the same: your profit shrinks dramatically, and unexpected bills can threaten your business.

How Wexley & Associates Prevents VAT Problems

At Wexley & Associates, VAT is never left to chance. We:

• Monitor turnover proactively to ensure registration happens on time.

• Guide clients on when and how to charge VAT correctly.

• Provide clear explanations — so you always understand what VAT means for your business.

• Help plan for VAT liabilities to avoid sudden cashflow shocks.

The Verdict

VAT is straightforward in theory but devastating if ignored in practice. As this case shows, failing to register or charge VAT properly can cost hundreds of thousands of pounds — and even force drastic lifestyle changes.

👉 Wexley & Associates: Making VAT simple, strategic, and stress-free. Contact us today to protect your business.

References & Further Insight

• HMRC Guidance: How VAT Works

• HMRC Guidance: VAT Registration Rules