01 March 2018
It is thought less than 10% of tax inspections are random. As HMRC has fewer resources and as more reliance is placed upon the CONNECT system which connects multiple databases, HMRC are increasingly taking a targeted approach to compliance.
If you do get a VAT inspection, the reality is that something has happened to attract the inspection.
So maintain good, accurate records and have robust systems to ensure errors do not arise. A business that submits/pays VAT returns on time stands a better chance of not being inspected than a business that submits or pays returns late.
Another aspect that may trigger a visit is an erratic or sudden change in the pattern of VAT returns. A business that generally owes £20k a qtr to HMRC which then suddenly submits a return for a credit of £20k suggests something different has happened at the business. Such a change may be because of a genuine activity such as the acquisition of a new premises to operate from. Equally it could just be a simple error.
Good systems isn’t just inputting invoices onto an accounting package like Sage or Xero, it means having checks within the process so that a data entry error can be identified. Does your process include a bank reconciliation? Are there spot check on purchase invoices to ensure they are correct (businesses have been known to reclaim VAT on invoices where no VAT has been charged, there is just this presumption everything is VATable).
I know this sounds all very obvious, and it is, but at the VAT inspections I'm attending or involved in after the event, many of the issues were avoidable (not tax avoidable of course, just avoidable as in errors not being made in the first place).
Top Tips – How to reduce the chance of a VAT inspection
• Always submit your VAT returns on time
• Always pay your VAT returns on time. If you cannot afford to pay, still submit your VAT return on time and then speak to HMRC’s Business Support Service to negotiate longer payment terms
• Double check your VAT returns before submission, a secondary check by another person can be very useful
• Don’t be afraid to notify HMRC when errors have been made, penalties are based on behaviors
Don’t leave this to chance, so speak to your advisors or speak to us, our VAT advice is not as expensive as you think. VAT.tamworth@hwca.com
