The VAT Officer Cometh

A VAT inspection needn't be like this

We have all heard the horror stories about VAT officers and the taxpayer's harrowing experience, but it needn't be like that. If the taxpayer is reasonably well prepared, it should go a lot more easily.

One thing worth knowing is that if your business has been selected for a visit there's a realistic chance that HMRC expects to find something that will result in an assessment of tax. This is because taxpayers are selected for visit on the basis of perceived risk of an underpayment.

The myth of VAT officers receiving a commission on the amount of tax they assess is just not true, but they do get performance-based salary enhancements. It is fair to say that the number and magnitude of tax assessments doesn't go unnoticed when decisions are made as to who gets the maximum.

The rumours about the draconian powers of VAT officers are quite correct, as many stem from the uniformed Customs regime, but they do include the word "reasonably." What constitutes reasonable is a matter for the Courts to decide, but we don't recall anyone ever having used the power of arrest over an incorrect VAT return.

The knowledge and experience of VAT officers is a very variable feast and many are now professionally qualified. Equally it is not fair to tar them all with the brush of our friend in the picture. It's pot luck who you get on the day.

You've been unlucky - what can you expect?

A VAT inspection can be very frightening

If you are unlucky enough to get selected it is as well to establish the ground rules before the officer arrives. The first point of contact no longer comes from the VAT officer. In fact it probably comes from another part of the country where a number of people have the pleasure of breaking the news by phone. These people can't tell you much, except to say HMRC want you to have all your records available for the last 4 years. 

If you can, get to speak to the VAT Officer in person. With luck he or she will have instructions to "audit" a specific area; if you are told what it is, you can be better prepared, and there will be less time wasted on preparing for what will not be inspected.

You can expect the officer to go into some detail over exempt, reduced and zero rate supplies, as well as take a look at the input tax you have recovered. This is because the remit is to look for underpayments. It is unlikely they will question output tax you have charged out at 17.5% or input tax you have not claimed. That's the way it works.

If you decide to have your VAT adviser present (very wise if HMRC suspect an underpayment) it is better that the adviser speaks to the officer in person. That way the adviser will know what to expect before the event.

If there is an assessment (more often the case than not), don't just take the officer's word for it. Get proper advice: a number of assessments are issued in error and some attract financial penalties: up to 100% of the alleged underpayment. In some cases they even get the sums wrong.

If the assessment is justified, look through your accounts for compensating overpayments, as an overpayment is very likely to result from a genuine error. It could work out that HMRC owe you.

If a paid self assessment return has been filed that includes the period assessed, consider whether the VAT assessment makes for an overpayment with regard to the self-assessment: if so get HMRC to review the self assessment and any interest charged on the VAT assessment. Ideally they should net off the amounts.

All this is too much to stomach!

We are here to help.

We can ensure the proper conduct of the visit and reduce the amount of work you have to put in to the minimum.

We can ensure that any assessment is justified BEFORE it is issued.

While HMRC are looking for underpayments we can address the balance by looking for overpayments.