When an Inspector calls: Preparing for an HMRC tax investigation
Dealing with a VAT inspection
So you’re quietly going about your business when HM Revenue & Customs ring to arrange a time for an inspector to visit your business to conduct a VAT inspection, checking your books and records. How can you ensure this event passes with as little stress as possible and what actions can you take to prepare for the event?
The first thing to remember is that contrary to popular belief, the law is on your side and there is a lot that you can do to ensure you pass the inspection in good shape.
Setting a date The VAT office will suggest a date for the inspector to call. Don’t panic. You’re not obliged to put yourself under pressure to accept. Consider whether the visit is convenient or not. If it is and you’re sure your records are in good shape, accept the date of the visit and get it over with.
Alternatively, if it is clearly inconvenient, you are completely entitled to postpone the meeting and make arrangements to meet at a more agreeable time. Revenue & Customs have plenty of other businesses to visit; they are not going to get upset if you can’t make the appointment.
Legitimately, your books and records may be with your accountant. Or you may be in the middle of a period of staff holidays, meaning you could be short-staffed and unable to give the correct amount of time to the call.
But more to the point, you will feel more comfortable suggesting a meeting date of your own choosing. Remember, it’s your business; hence the date and time of the meeting must be acceptable to you and your staff.
Be prepared When the inspector calls on the agreed date, make sure that everybody in the office knows that you are having a VAT inspection. Having a stranger in the office, with a flurry of activity can unsettle your staff. Make sure that you have the last three years of audited accounts ready for the inspector.
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Also make sure that the person who compiles your accounts is in attendance. This may be your bookkeeper, financial controller, or even financial accountant. You may even have a VAT consultant working with you. If you do, he or she should also be in attendance.
The visit Ensure that the VAT inspector only deals with you, or one of your trusted representatives. VAT Inspectors are very good at talking to staff and people who are not fully connected with the business. This way they are able to glean additional information, which may contain half-truths, on which they will then later base their assessments.
Always ask the officer what exactly it is he wants to check, making sure that those records are available at the agreed time. Offer the VAT inspector a cup of tea or some other form of refreshment. After all VAT Inspectors are after all human and they do have a job to do.
During the VAT inspection it is crucial that you take note of what is said. Ensure you have a detailed record of the inspection and the outcome. There are plenty of cases where there have been disputes over what was said and what was done during the inspection.
Make a note of any decisions made by the VAT Inspector on how VAT relates to your business, its products and services. This will revolve around the interpretation of the VAT laws. Get these decisions in writing, as they may relate to aspects of the business that you may be unsure of.
If you ask specific questions, again get a detailed response. If you are still unclear, obtain a written ruling. This is very important, as the advice given will be implemented into your business which, if found to be wrong at a later date, could prove costly.
Depending on your business type, you may be affected by a less than clear interpretation of the VAT rules. Industry sectors such as: design & print, property, construction, fundraising and charitable giving, to name but a few are a little hazy. That is why you need the ‘insurance policy’ of a written decision specific to your business. Then you will save further problems at a later date.
Also remember that not all current VAT leaflets and notices are law. The contents of most HM Revenue & Customs VAT leaflets are for interpretation only, by both you and the enforcer. Some notices have ‘force of law’, but in the main, the majority do not. That is why it is important to fully document any agreement that you and the VAT inspector arrive at, as this ruling may affect your business.
Remember your rights If you think the information you are being presented with is incorrect, challenge the assessment. The VAT man isn’t always right! You can also request that another VAT officer is assigned to your case.
Lastly, if you are in doubt, seek professional advice. In extreme cases appeal to a VAT tribunal. If you go down this route ensure that you have an expert on your side. In this instance it may be more appropriate to engage the services of an independent VAT consultant, as opposed a potentially expensive lawyer.
Whatever the outcome may be, ensure you’re in charge when ‘an Inspector calls’.
Make sure that everybody in the office knows that you are having a VAT inspection. Read more on how to prepare for a tax investigation here.