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Steve Allen, Director of VAT Solutions (UK) Ltd, offers some practical advice on dealing with a VAT inspection by HM Revenue & Customs. 

Steve Allen

Introduction

One of the most stressful events that can happen to any business is the prospect of a VAT inspection. It’s believed that VAT Officers now have aggressive targets to meet, so are looking for businesses that have obvious mistakes and the cash to put them right.  Some accountants say that for every 7-10 years in business, you should expect a visit of some kind.

Here’s an easy guide to the things you should do to prepare your business now, and how to handle a VAT inspection when it happens:

Preparation

The most obvious step is to ensure your VAT affairs are totally in order. You should employ a suitably qualified accountant or bookkeeper to help you keep track of VAT and ensure your returns are not late. Even if you feel competent to do this yourself, it is a good investment to pay a professional to take an overview for you – they will ensure you stay within the law.

Protection

It’s worth every business taking out VAT investigation insurance. If you are subsequently investigated, the policy will pay an accountant to handle the investigation for you. Some policies also cover other tax investigations. One of the most cost effective ways to get this insurance is to join an organisation such as the Forum of Private Business – which, amongst other membership benefits, provides members with tax investigation cover.

If you have made a mistake

Even innocent mistakes can be viewed badly by Officers, so you must take professional advice immediately to work out the best course of action. There are firms that specialise in helping businesses declare mistakes while reducing their liability. Your accountant will be able to give advice on the best course of action for your circumstances.

Inspection date

The first you may know about an impending visit is when HM Revenue & Customs phone to book a time for the inspector to visit and look at your books. You don’t have to accept the first date offered… if you need time to get your records in order, then politely offer some alternative dates. You should pick a date when all your staff will be in, and your accountant or bookkeeper is available to attend.

Get your staff ready

Ensure your staff are aware that the business is being investigated and that it is a routine event you are prepared for. There’s nothing more worrying than seeing the boss stressed while a stranger roots through the paperwork. It’s also worth telling your staff that if the inspector asks them any questions, they should direct them to you rather than attempt to answer them.

On the day

Get in early, make sure you have your last three years’ audited accounts available, and your bookkeeper or accountant is readily available – ideally in person.  Be polite and professional when dealing with the VAT Officer.  Give them plenty of room to work in, and keep them comfortable with tea and coffee as appropriate.  But also ensure you stay in control.

Take notes

It’s vital that you or your representative keep careful notes of what is said to you by the VAT Officer. Get copies of their interpretations of VAT law in writing; this will help you apply their ruling consistently and deal with any future challenges.

Don’t panic!

If you use professional advice or support, keep your VAT up-to-date and deal with any enquiries promptly, you really have little to worry about. An investigation won’t necessarily find anything wrong, and you do have rights, including the right of appeal. The most extreme option to you is to appeal to a VAT tribunal.  A VAT specialist will be able to advise you on this.