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VAT compliance visits are as old as VAT itself and have been accepted by many as an inevitable consequence of carrying on in business. However, with Budget deficits to plug and tax anti-avoidance very much on the agenda, such checks are becoming more and more common – with a 153% increase over the last 12 months alone – so that it is only a matter of time before a VAT-registered business receives a letter from HMRC advising them that they will be contacted to arrange a visit from one or more of their Officers.
A business may be selected for a variety of reasons:
What should I do?
As soon as you receive such a letter (and this should apply whenever HMRC make direct contact with you) you should let your accountant know. He or she will be able to discuss the process with you – deciding on when and where the meeting should take place (HMRC will normally want to inspect the records on the business premises – which may well be more convenient for you – but they are not able to insist on this). HMRC should confirm both the reason for the visit and the records that they want to see – any requests to see records not relating to your VAT affairs (‘fishing trips’) should be turned down!
You may want your accountant to help you with a pre-visit review of your records in order to ensure that your records are in good order and readily available. Such a review will help to identify any errors which may be disclosed to HMRC before the visit, which may help to mitigate any penalties that may be chargeable. Common areas of difficulty include property-related VAT, special methods, partial exemption, intra-group supplies, ‘blocked’ input VAT on entertaining, cars etc.
You can ask your accountant to attend the visit as well, depending on the complexity of your VAT affairs and your confidence in your ability to deal with any questions that arise – if your agent is not around at the time, it is important to remember to answer only those questions that are asked, and not to volunteer unnecessary information – always “tell the truth, nothing but the truth, but not necessarily the whole truth”!
Is there anything I can do in the meantime?
Inevitable though they may be, some businesses can go for years without a VAT check. Nevertheless, it would make sense to ensure that your VAT housekeeping is in good order just in case ‘that’ letter should arrive in the post:
Get things right from the start and you can relax in the knowledge that when the Inspector does come knocking he’s likely to leave with not much more than a cup of tea and a biscuit in his stomach.
For more information contact David Lochhead in our Tax Group on firstname.lastname@example.org