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Top ten tips for a VAT inspection

Posted: January 18, 2018

What do you do when the VAT man knocks on your door? Don’t panic, says Burgess Hodgson’s Greg Mayne, who here outlines his top ten tips for dealing with a VAT inspection.

1 Unless it’s immediately apparent, try to find out the reason for the visit. This might be due to an ‘unusual’ VAT return submitted, particularly if it shows a repayment when you normally have to pay VAT. HMRC might hold the repayment until they check it (a ‘pre-credibility’ visit) or repay it and then check (‘post-credibility’). If you’ve made a large purchase send HMRC the details when you file the return as this might answer many of their questions and avoid a need to visit, and hopefully speed up your repayment.

2  In advance of an announced visit check and confirm the records and the VAT periods that are required for the officer to inspect. It is also worth making sure that the right people are available to discuss those records and, particularly if it’s the first VAT inspection, the business more generally. It can help to provide a summary document, such as a business structure or flowchart of processes. If there are specific access requirements to the records (individual log in, for example) make sure those people or their log in details are available to allow access. If there’s no available space at your premises explain this beforehand and arrange an alternative location, such as your accountants.

3  When the officer arrives offer the normal hospitality and accommodation. It’s important not to go over the top (which might be viewed as suspicious) but a tour around the business explaining any processes and demonstrating products is a useful starting point. Offer refreshments, make sure there’s somewhere convenient for them to work, explain any potential safety issues (any planned fire alarm tests, for example) and location of toilets, etc.

4  Allow plenty of time for the visit, and make sure that the right people, the right records and the space to work will be available for as long as possible. If it’s not convenient, for whatever legitimate reason, make it clear well in advance and rearrange the inspection. Failing to deal with this might cause the officer to be suspicious as to why people and records are unavailable, and why you keep rearranging the inspection date.

5  Make good use of a ‘tame’ VAT officer coming to your business. If you have any questions or issues that require clarification then make them known to the officer. They may be dealt with at the inspection, but if not then the officer should deal with them later or ensure that they are passed to the right person or department for response. They are there to monitor the tax and represent HMRC, so if you have plans that may impact upon your VAT position you can ask for their help. Expanding into international sales or purchases, business diversification, change of legal entity for example may need to be clarified.

6  If the officer provides any advice and guidance, or asks for a response to specific queries, make sure these are recorded accurately and clarify anything that might be unclear at the time. You can always ask for this to be done in writing as this will confirm the details and also may allow others to contribute to a response, e.g. accountant or other adviser.

7  Make sure the officer has finished with any records or individuals before removing or closing files and people leaving the office. HMRC have the power to remove records if they’re either unable to access them correctly or require additional analysis. They may also wish to return at a later date if they haven’t obtained the information they require.

8  A review of VAT accounting records at any time may unearth errors or amendments that need to be made. When those errors or amendments are discovered as a result of the impending VAT inspection they are deemed to be under ‘the shadow’ of that inspection, and may be treated more seriously in terms of any penalties that might arise. This shouldn’t stop you from disclosing any such issues that are uncovered, but might indicate a need for a fresh approach to reviewing your VAT accounting.

9  Following the completion of the inspection, if the officer does indicate that there will be an assessment raised then don’t despair. Assessments will usually take some time to process and the officer will normally provide an advance draft of the errors and queries concerned and invite a response within a period of time. This will allow you time to review the errors and queries and provide suitable documents or explanations to deal with them. This may be a good time to call for additional professional input.

10  Above all, don’t panic! The visit may result in a more efficient way of dealing with your VAT.