Two former VAT inspectors with nearly 50 years of experience between them share some simple hints and tips for organisations to follow to help make HMRC VAT audit checks run smoothly.
The most common types of VAT checks are either repayment (formerly known as ‘pre-creds’) or routine inspections (compliance checks).
Single period checks are usually triggered by the submission of an unusual VAT return. Many businesses regularly submit VAT returns with a repayment due and it is perfectly normal for them to do so, however, if the total is extraordinarily high a check may be prompted. Likewise, a first return (repayment) can trigger a response as well as a repayment return submitted by a business which is usually in a payment position.
‘Routine’ inspections can happen for various reasons. It could be that a particular trade sector is presenting a specific risk, or perhaps that the business has shown unusual trading activity which may give rise to concerns over its ‘credibility’. A business may also be selected to test that HMRC’s risking process is working – businesses which are considered compliant may be inspected to confirm that this is indeed the case.
A VAT inspection is, in part, HMRC’s way of gaining better understanding of your business. By making contact and checking records they will be better placed to know what changes may or may not present a risk. For example, a visit to a business listed on its registration application as a ‘newsagent’ could be a freelance journalist (true story)! The VAT profile for each is very different and so when considering the VAT returns that are submitted this revised information can be taken into account.
As part of a repayment or a compliance check an officer will ask to see records to support the completion of a VAT return. It does vary as to what evidence the officer may request to see but the following are typical documents that you may be asked for during a check.
Hints for repayment VAT return checks
This is also a golden opportunity to brief HMRC about future returns. For example, if the business has a new export contract meaning that a greater proportion of its sales will be VAT free, it is recommended to explain this to HMRC so that a note can be made, hopefully preventing any immediate follow-up questions.
And remember, whatever type of check, HMRC are constantly re-evaluating risk and how to address it. Presenting as confident, knowledgeable, credible, and responsible gives the best first impression.
Whatever the check, contact with HMRC can be very useful so don’t be afraid to ask questions of the officer. For example, if you need to update your registration details for any reason the officer may be able to action them as part of their duties.
In most cases, and at the end of the check, the officer should run through their findings. They may require further information to clarify something, or they may have found an error (in either parties’ favour). This is a good opportunity to ask questions if the issue being raised is complex or something the business is unfamiliar with. It may also be helpful to have a second person from the business present. Very often when there is a lot of information being shared it can be difficult for one person to absorb it all. Taking contemporaneous notes can also be helpful.
Businesses are faced with a multitude of potential pitfalls when managing their VAT compliance. But there are a few error types that can be avoided by an objective and critical review of the business profile. For example, have all streams of income been considered. Aside from the main activity there may be sales to staff (including salary sacrifice schemes), canteens, tenants on site, or perhaps goods/services supplied to staff at discount. Another potential source of income is waste material or disposals of assets (this will include items part exchanged). All these non-core activities are potential VAT risks. Failing to keep export evidence for goods dispatched overseas is also another easy mistake to make.
Dates and tax points can cause errors – for example if an invoice is delayed it may miss the preparation of the return. Ensuring that ‘unreconciled transactions’ from previous periods are not missed altogether is an important control.
On the purchases side it is important to exclude non-business expenditure. Retain evidence of checks the business carries out to confirm the bona fides of suppliers. For example, VAT numbers can be checked via Check a UK VAT number. A screenshot of the result can help to show that appropriate due diligence is being observed.
Ultimately, even where genuine errors are discovered matters are usually resolvable. With an experienced team of VAT (including former HMRC VAT officers) and Customs specialists, Crowe is very well placed to support businesses through this process. If you have an inspection coming up or if you would like us to carry out a VAT ‘health check’ to give you some reassurance, please contact Robert Warne, or your usual Crowe contact.