Hi Altna
It sounds like you've been professional and informed your friends of the potential consequences of them using you. My take on this would be that, as they are seeking the help of a trained book keeper, and the fact they have appointed a new accountant - despite being in a mess, they are attempting to get this sorted and to get themselves legal, so the HMRC would be 'kind of' sympathetic to that and you would not be putting yourself at risk.
If you make it clear to them that your first steps would be to carry out work necessary to clarify what their turnover has been for the last couple of years, so that you can accurately pinpoint at what stage in the rolling 12 months they may have hit the VAT threshold, then either the client, you, or the accountant will then have the obligation to report this to HMRC.
If the client are understanding of this and will go do what is necessary once the findings are clear, then all will be well. If, however, your findings were, for example, that they should have registered for VAT 6 months ago and your client still chooses to ignore this and not report this fact to HMRC, then you would be obliged to do so yourself. Providing you did this, it would not endanger your licence or reputation. It may damage the relationship between you and the client, but that's your friends fault and problem - if you get my meaning!
This type of work can be an enjoyable challenge, I've recently had a similar case myself. My client has 2 businesses and should have registered one in July 2012 and the other in September 2012. The VAT office have been very lienient with him up to now, despite his 'delaying' tactics. As I provided a letter on one of my letterheads, addressed to my client, with the findings in a clear spread sheet format, with the intention of him being able to send this to the VAT office (which he did), the VAT office have also copied me in on the result notifications too, which was useful in case your client isn't completely truthful with you.
Good Luck - Hope this helps Carol
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