What will you do if the VAT man comes knocking on your front door? Burgess Hodgson’s Greg Mayne says don’t panic. Here he outlines 10 top tips on how to handle a VAT inspection.
1.Unless it is immediately apparent, first try and establish the reason for this visit. It may have to do with an “unusual” VAT return that was submitted, especially when it displays a repayment when you would normally need to pay VAT. HMRC may hold this repayment until they have checked, known as a pre-credibility visit, or a repayment then a check known as post-credibility. If you have made a purchase that is large, make sure you send HMRC these details when filing your return as this may be the answer to many questions they might have prevented the need for such as visit, along with speeding up a repayment that is due to you.
2.Before a visit that is announced check as well as confirm records along with the VAT periods which will be required for inspection by an officer. It is also worthwhile to make sure the correct individuals are available in order to discuss these records, and especially if it is the first VAT inspection, more generally for businesses. It can assist in providing a summarized document, like the business structure or a flowchart of the processes. If there happen to be specified access requirements associated with the records. For example, individual log on. Ensure that these people or their personal log-in details are made available to allow for this access. If there is no space available at the premises, let them know beforehand, and make sure you have made arrangements for another location like at your accountants offices.
3.When an officer arrives make sure you provide the usual accommodation and hospitality. Avoid going overboard (which may be seen as suspicious) yet offering a tour of your business and explaining processes or demonstrating your products is a good place to start. Offer a refreshment and ensure there is a space that is convenient where the officer can work from. Also explain any safety issues (for example, a planned fire-alarm test), and where the toilets are located, etc.
4.Allow ample time for such a visit, and ensure the correct records, people and a space to work in is made available for this time. If it is not convenient, for any legitimate reasons, make sure you have made this clear in advance and then rearrange for this inspection. If you fail to deal with this issue it may raise suspicions associated with why the records or people are not available, and why you need to rearrange this important inspection date.
5.Take advantage of a “tame” VAT officer that comes to your place of business. If you have issues or questions that requires clarification, make it known to this officer. They may be handled at the actual inspection, but when not, the officer is required to handle your questions later on or make sure you have been passed onto the correct department or person for a response. Their role is to monitor taxes as well as represent the HMRC. So, if you happen to have plans which might impact on your VAT position, you can ask for assistance. Expanding into international purchases or sales, change of a legal entity or business diversification are examples that might require clarification. Here is a good list of VAT rates from VATGlobal to help you understand the percentages.
6.If the officer offers guidance or advice, or asks you to answer questions to specified queries, ensure they are accurately recorded and clarify if anything is unclear. You may request to have all this in writing because this confirms details and can also allow for other people to contribute to the responses such as an adviser or accountant.
7.Ensure that the officer is finished with an individual or any records before closing or removing files, or letting the individual leave the office. HMRC are allowed to remove any records when they are not able to correctly access them, or they require more analysis. They may also want to return on another day if they have failed to obtain information that they require.
8.A review of your VAT accounting records might unearth any amendments or errors that should be made. When an amendment or error is discovered from an impending VAT inspection they are regarded as under “the shadow” of this inspection and might be viewed as a lot more seriously should any penalties arise. This should not prevent you from the disclosure of such issues when uncovered but may be an indication for the requirement of a new approach to review your VAT accounting.
9.At the end of your inspection, and the officer indicates there is going to be an assessment that will be raised, don’t despair. An assessment usually takes a bit of time in order to process. In most cases you will be provided with an advance-draft of queries and errors and provided with the suitable explanations or documents that you need to deal with. This is usually the time to hire the services of professional input.
10.Above all, it is important not to panic. These visits might lead to a far more efficient way in which to deal with your VAT.