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VAT Voice by Andrew Needham

Andrew Needham, Director of VAT Solutions (UK) Ltd, points out that VAT inspectors may be using ‘enabling letters’ to encourage compliance, applying the tactics used by their colleagues from the former Inland Revenue.Now that the Inland Revenue has completely merged with Customs & Excise, the neighbourhood VAT Inspector has started to learn a few new tricks from his taxman colleagues, mainly because the head of the small and medium sized businesses policy division is an ex-Revenue man.

The VAT Inspector has decided that he has a new, cheap, and effective method of ‘encouraging compliance’ from smaller businesses, or ‘customers’ as they are now referred to. He has identified that certain types of business can be encouraged into being more compliant by sending them what amounts to threatening letters.

Examples of letters that are being sent out, or are being planned, are:

• Letters to businesses that submitted accounts that show a turnover just under the VAT registration threshold (currently £60,000 p.a.). They have no actual evidence that your business is artificially keeping its turnover under the VAT threshold. They just know that a number of businesses do that to avoid registering for VAT. Consequently, a letter is sent out to everyone concerned, (e.g. those turning over more than £55,000) saying that they have reason to believe they may be registerable, and that they could get lower penalties if they review their turnover figures and register themselves before a possible visit. The key point is that they say they may get a visit. In reality, they have no plans to visit, but hope the threat of one will scare some ‘customers’ into registering.

• The VAT Inspector has just sent out a letter to all pubs in the country advising them that they are starting a six month programme visiting pubs (alright for some), sometimes just turning up on the doorstep, with the intention to assist pubs with accounting for the right amount of tax at the right time. They go on to say that during the years of visiting pubs they have identified common errors that are made (like suppressing takings). The lady who is running the program is quoted as saying “We will be working with individual pubs and the industry as a whole, to help public houses pay the right tax at the right time, and to provide information about the schemes we offer, which can simplify VAT matters.” What this really means is that HMRC suspect that a number of pubs fiddle their takings and that the threat of an unannounced visit will scare some pubs, sorry “customers”, into reducing the amount of suppression or even making a voluntary disclosure of past “errors”. In reality, HMRC is constantly visiting pubs and will visit a few more in the next six months, and if you have done nothing wrong, you will have nothing to fear.

• In another example, all coach operators in the North West of England have had a letter saying that during “assurance visits”, officers have identified a common mistake being made by coach operators, in that they have failed to account for VAT on the sale of a second-hand coach being sold on. It is implicit that HMRC take a careful look at coach operators and check that VAT on the sale of coaches has been accounted for correctly. As a result of these letters, a number of coach operators have made voluntary disclosures relating to undeclared VAT on coach sales.

The main thread running through this is that HMRC is trying to scare ‘customers’ into paying up with the threat of a VAT visit, when in reality, there is little more likelihood of a visit than there is normally. If you receive one of these letters, don’t panic, just do your best to comply with your VAT obligations and get on with life!

November 2005

Andrew Needham
Director, VAT Solutions (UK) Ltd
Email: andrewneedham@vatsolutions-uk.com


VAT Solutions (UK) Ltd
11 Winmarleigh Street,
Warrington,
WA1 1NB

(T) 01925 242497
(F) 01925 242498
(M) 07810 433927
(W) www.vatsolutions-uk.com

VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via the following address: www.vatsolutions-uk.com/newsletter.doc