VAT inspection

[TykeMerc]

just had a call from the VAT folks that I have been "selected for a routine VAT inspection"

Anyone been through one of these? What's it like?

Had a couple, no problems so long as you keep receipts and records properly which of course you do.

[pjclarke]

Don't Worry

I had my first a few weeks ago. In my case the meeting was at the offices of my accountant. They say they inspect every firm within three years of registration for VAT, then every 4-6 years, however two other contractor acquaintences of mine have got away with a 'visit by letter' so far. I've been a Ltd Co since Jan 2005.

My affairs are slightly unusual in that there was an 18 month 'permie gap' in the trading record, which was enquired about. Also we changed accountants during the gap due to incompetence on the part of my original lot. I spent some time beforehand trying to get the records shipshape but even as a non-accountant I was painfully aware that the early book-keeping records were in a bit of a state.

It went very well overall. The Inspector was a middle aged lady armed with a calculator named Linda *. There were a few questions about the nature of the business and the trading history, then she dived into the numbers. At first I thought we were going to get off lightly as she took a month out of the record and magically it balanced up with the VAT return. It looked as though she was going to leave it at that, but we then found the VAT calculations made by <Old Accountants> and she then started going through them month by month. Of course nothing seemed to balance on the first pass. There then followed some intense accountancy-speak between <New Accountant> and Linda as they attempted to match up the invoices and bank statements with the calculations, where she was highly critical of the audit trail describing it as ‘inadequate’, and the invoices as incorrect or 'not a proper VAT invoice', which led me to believe that we would be in for a slap on the wrist or maybe a financial penalty. I have heard horror stories about inspectors turning nasty and going on fishing expeditions for errors ...

http://www.affiliates4u.com/forums/g...tml#post280993

however, she was really only interested in determining how (OldCo) had arrived at their figures and after some intense calculator-hockey the two accountants convinced themselves that they had managed this. As I understand it, OldCo had ‘carried forward’ some VAT liability between quarters where they should not have, applied the wrong flat rate during the first year (omitting the a 1% discount) and did not apply the flat rate at all to some invoices.

For these reasons she calculated that we had overpaid VAT by about £700. Rather than put an adjustment through the return, which we would not get until September, she is going to authorise a refund direct to our bank account. Result!

That all took about 90 minutes, checking the more recent VAT calculations done by <NewCo> took 5 minutes and they were correct to the penny. I suspect we were probably far from her worst client - she also inspects some small construction firms and there was dark talk of accounts being presented in Tesco carrier bags. At the end of it all, she closed the files and said, right keep those for six years, but we will not need to see them again.

My advice -

1. Have your accountant present if possible. The letter clearly said I (or another director) had to be present, however on the day Linda said she didn't actually need to see me, and apologised for making me miss work.

2. Ensure you have all records, supporting book-keeping, contracts (I ensured my 'This is IR35-compliant' letter was prominently affixed to all contracts, in the end they were not inspected), annual accounts, Bank Statements etc ready. Also your certs of VAT registration and Incorporation. There are definitions of what is required for VAT on the HMRC website,

For this first visit, we were asked to have records since registration, I believe two years is more usual. Records must be retained for 6 years, however. You should receive a letter informing you of the visit specifying what they need to see. Mine specifically said this was not a 'full audit', which I meant to mean that expense receipts were not needed, but I may be mistaken.

3. Its worth spending some time getting the records into a 'professional' looking state, ie properly filed and indexed if necessary. When asked for a particular invoice and related bank statement, I was able to pull both straight out of the file and present them, this went down well and I think prevented further digging which might have uncovered less high quality material...

4. Don't worry! As long as your record keeping is up to scratch and I am assuming you are not actively engaged in VAT fraud, the purpose of the inspection is to ensure the VAT sums have been done correctly and you're not underpaying or overpaying. If you're on the flat rate scheme, this should not take long. Be courteous and professional, but remember that HMRC (VAT) can share information gathered with other branches so don't volunteer anything more than you have to, that might trigger a different, less welcome, type of inspection.



(*) Strange name for a calculator.

[PM-Junkie]

Thanks folks...its at times like this I am glad I behave myself! Spoke to my accountant - nothing to worry about. Apparently it's quite common.

I guess I just don't trust anyone connected with the government

[voodooflux]

Thanks folks...its at times like this I am glad I behave myself! Spoke to my accountant - nothing to worry about. Apparently it's quite common.

I guess I just don't trust anyone connected with the government

A friend of mine has a useful tactic for VAT inspectors: give them plenty of tea then tell them the toilet is broken.

[pjclarke]

Loose Lips Sink Ships

AFAIK a vat inspection is to make sure that your charging vat correclty / passing the vat on not if your able to claim expenses.

The VAT man i am pretty sure cannot make a claim based on your IR35 status as they don't determine it. 

This is true, however the letter I got explicitly said that information gathered on the visit could be shared with other parts of HMRC, and the first part of the interview was about the nature and size of the business; they may use the opportunity to assess whether an IR35 investigation might be worth their while.

As it happens all my contracts have been assessed by a specialist and in their judgement I am on the right side of the fence, but no reason to trigger the time, expense and stress of the investigation process if you can help it.

PS I made this and other points in a longer post which seems not to have appeared ...

[pjclarke]

Cross-post from Aug 2008

I had my first a few weeks ago. In my case the meeting was at the offices of my accountant. They say they inspect every firm within three years of registration for VAT, then every 4-6 years, however two other contractor acquaintences of mine have got away with a 'visit by letter' so far. I've been a Ltd Co since Jan 2005.

My affairs are slightly unusual in that there was an 18 month 'permie gap' in the trading record, which was enquired about. Also we changed accountants during the gap due to incompetence on the part of my original lot. I spent some time beforehand trying to get the records shipshape but even as a non-accountant I was painfully aware that the early book-keeping records were in a bit of a state.

It went very well overall. The Inspector was a middle aged lady armed with a calculator named Linda *. There were a few questions about the nature of the business and the trading history, then she dived into the numbers. At first I thought we were going to get off lightly as she took a month out of the record and magically it balanced up with the VAT return. It looked as though she was going to leave it at that, but we then found the VAT calculations made by <Old Accountants> and she then started going through them month by month. Of course nothing seemed to balance on the first pass. There then followed some intense accountancy-speak between <New Accountant> and Linda as they attempted to match up the invoices and bank statements with the calculations, where she was highly critical of the audit trail describing it as ‘inadequate’, and the invoices as incorrect or 'not a proper VAT invoice', which led me to believe that we would be in for a slap on the wrist or maybe a financial penalty. I have heard horror stories about inspectors turning nasty and going on fishing expeditions for errors ...

http://www.affiliates4u.com/forums/g...tml#post280993

however, she was really only interested in determining how (OldCo) had arrived at their figures and after some intense calculator-hockey the two accountants convinced themselves that they had managed this. As I understand it, OldCo had ‘carried forward’ some VAT liability between quarters where they should not have, applied the wrong flat rate during the first year (omitting the a 1% discount) and did not apply the flat rate at all to some invoices.

For these reasons she calculated that we had overpaid VAT by about £700. Rather than put an adjustment through the return, which we would not get until September, she is going to authorise a refund direct to our bank account. Result!

That all took about 90 minutes, checking the more recent VAT calculations done by <NewCo> took 5 minutes and they were correct to the penny. I suspect we were probably far from her worst client - she also inspects some small construction firms and there was dark talk of accounts being presented in Tesco carrier bags. At the end of it all, she closed the files and said, right keep those for six years, but we will not need to see them again.

My advice -

1. Have your accountant present if possible. The letter clearly said I (or another director) had to be present, however on the day Linda said she didn't actually need to see me, and apologised for making me miss work.

2. Ensure you have all records, supporting book-keeping, contracts (I ensured my 'This is IR35-compliant' letter was prominently affixed to all contracts, in the end they were not inspected), annual accounts, Bank Statements etc ready. Also your certs of VAT registration and Incorporation. There are definitions of what is required for VAT on the HMRC website,

For this first visit, we were asked to have records since registration, I believe two years is more usual. Records must be retained for 6 years, however. You should receive a letter informing you of the visit specifying what they need to see. Mine specifically said this was not a 'full audit', which I meant to mean that expense receipts were not needed, but I may be mistaken.

3. Its worth spending some time getting the records into a 'professional' looking state, ie properly filed and indexed if necessary. When asked for a particular invoice and related bank statement, I was able to pull both straight out of the file and present them, this went down well and I think prevented further digging which might have uncovered less high quality material...

4. Don't worry! As long as your record keeping is up to scratch and I am assuming you are not actively engaged in VAT fraud, the purpose of the inspection is to ensure the VAT sums have been done correctly and you're not underpaying or overpaying. If you're on the flat rate scheme, this should not take long. Be courteous and professional, but remember that HMRC (VAT) can share information gathered with other branches so don't volunteer anything more than you have to, that might trigger a different, less welcome, type of inspection.



(*) Strange name for a calculator.

[scooby]

If you are Flat rate, there isnt much to look at is there? Mainly the invoices and the amount of FRS paid surely?

What other receipts are needed as they are not included / relevant...

[TheFaQQer]

If you are Flat rate, there isnt much to look at is there? Mainly the invoices and the amount of FRS paid surely?

What other receipts are needed as they are not included / relevant...

That's pretty much all I could think of - and to check that you are on the right rate.

[malvolio]

So ask yourself - if this is a VAT accounting verification, why did Linda ask about contracts and trading details...?

[scooby]

So ask yourself - if this is a VAT accounting verification, why did Linda ask about contracts and trading details...?

that was my thought! assume at this point a PCG member can call on them to help?