The main purpose of a VAT inspection is to check whether a business is paying or reclaiming the correct amount of VAT.
A written notice of enquiry from HMRC, received by a business, about a forthcoming VAT inspection can cause severe anxiety! It often includes notification of their intention to visit your premises!
There will be reason for it, as they rarely carry out routine advisory ‘Control Visits’ like they did for new businesses in years gone by. Sadly no, any VAT visit is based on a full and exhaustive risk-based analysis, of various of things including VAT returns, your accounts and everything in the public domain from business rates, your website and online selling platforms to Facebook pages.
A check of the VAT return figures against those shown in the business accounts filed, may flag up discrepancies, particularly in your sales figures.
HMRC have full access to details of amounts you have taken on credit and debit cards from your merchant acquirer. These will be compared to the sales figures declared for tax and VAT purposes. They also use the card payments as percentages of your gross turnover to raise any queries about the level of cash the business had declared, if this seems insufficient.
VAT inspection will focus on a detailed review of your sales invoices issued, your purchase and services invoices claimed in the accounts and the business bank accounts. Not only will they be looking for personal items for which you may have claimed the VAT back but also items that are disallowable.
Any ‘one-off’, continuous, or large VAT repayment you may have claimed could spark a VAT inspection.
Those using the flat rate scheme are also regularly scrutinised to ensure they are not claiming VAT repayments as this is not expected to occur, except on rare occasions
HMRC also carry out comparisons to other similar businesses in your postcode area and look at whether your gross profit rate for example, falls in line with what they are expecting from your type of trade.
Lindsay would advise that in all cases you do not allow the VAT inspectors to visit your home or business premises. As they wish to scrutinise the business records it would be preferable to have these delivered to your accountant or specialist and hold a meeting in their office along with your advisor present to answer any questions. These can then be passed to you to resolve if necessary.
There have been many combined VAT and tax raids on business premises in recent years into specific business sectors. These for example covered restaurants and takeaways in the north of England and the East coastal regions.
Typically, HMRC officers would turn up in the evening, have a meal, pay in cash then leave the premises and return later as the restaurant or takeaway closes, to question the staff, read the till, and check if the cash has been rung through the till.
This would involve using one of their till reading specialists to insert a code into the till and print out details of the total takings rung through. This could involve taking a till takings reading back to the last date that the till was upgraded or installed.
This is then compared to the tax returns, accounts and VAT returns submitted to see whether all sales rung through the till have been declared. In all but one case it resulted in large tax settlements for HMRC. Sadly, one local prosecution of a Chinese restaurant owner resulted, another local restauranteur was made bankrupt by the large tax bill he faced following the conclusion of the enquiry.
Lindsay was involved in many of these cases and successfully concluded them by liaising with HMRC.
Routine or not, Lindsay will carry out detailed reviews of the records before HMRC arrive and flag up any concerns etc and put you on the right track for the future!
For help call 07879 464 577
