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VAT Voice by Andrew Needham

Andrew Needham, Director of VAT Solutions (UK) Ltd, asks where a trader stands if a VAT Officer writes to ask for a back up copy of the last 24 months’ accounting transactions. Can this request simply be ignored?

The story so far…

First request

One of our clients recently received a form from HMRC headed ‘Request for Annual Accounts’. It included a question as to whether or not the business was using a computer to keep accounting records. As the VAT returns and the book-keeping were prepared by the company on a quarterly basis using computerised accounting software, the form was duly sent back to the Officer together with the last two sets of accounts as requested.

Follow up

Our client has now received a letter headed ‘VAT review and the provision of transaction data’. The VAT Officer is now asking our subscribers to make a data back up of 24 months’ transactions, and send it to him so that he can carry out routine testing using computer assisted audit techniques. The Officer also attached copies from the accounting software’s manual on how to back up and download data. So, are you automatically bound by any direction of this sort that you receive, or can you simply ignore it?

When you can ignore it

Wrong address

It sounds silly but, as with all communications from the VAT Office, they can only be properly effective when properly addressed. If the notification is not addressed to your business in writing, it doesn’t work. We have heard of one notification being sent to a business’s advisers, and not the business itself.

TipCheck out the wording on the VAT Officer’s notice. If it’s defective, you can ignore it.

Penalty risk

There are penalties for not complying, and they are quite nasty. You could be looking at £200 per day. It’s capped at 30 days, but even so, that’s quite unpleasant. However, if the notice is invalid, you don’t need to worry about it. Indeed, the fact that there are penalty provisions can work in your favour.

TipThe law requires the VAT Officer to warn you of the penalty provisions when he writes to tell you what he wants. If he forgets, his notice is again invalid!

Unreasonable request

The Officer can only issue a direction for additional records where he has reasonable grounds to believe the information gained will allow him to identify fraudulent transactions. Alternatively, he might be asking for everything just as a ‘fishing exercise’.

Your plan

Plan A

The VAT Officer has a right to ask you to produce records. It’s been the norm for him to ask for 24 months of data from bigger companies. A visiting officer might even hand them a disk and ask you to put the information on it there and then. So, it’s not a complete surprise that’s HMRC are now using this on SMEs. They’re getting more technologically aware as the years progress, so plan A would be to cooperate and give them data. It’s routine, so don’t worry that they may know something you don’t.

Plan B

If you receive a notice and you think that the Officer is asking for too much information and compliance will be onerous (such as having to send in a detailed list of all trade sales and purchases to him on a weekly basis), argue that they don’t have reasonable grounds. If necessary, take it to VAT Tribunal - the new provisions now make this an appealable matter.

If you receive a notice requiring you to keep additional records, check that it is valid before complying. Unless it’s unreasonable, try and comply with his request as soon a possible to demonstrate your cooperation.

November 2006

Steve Allen
Director, VAT Solutions (UK) Ltd
Email: steveallen@vatsolutions-uk.com

VAT Solutions (UK) Ltd
1 Dundonald Avenue
Stockton Heath
Warrington
WA4 6JT

(T) 01925 212244
(F) 01925 212255
(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 their website.