All you need to know for your tax investigation.
Whether you’ve just received notice of an upcoming VAT inspection or are soon to meet with your HMRC officer for the first time, one aspect of this kind of investigation usually troubles business owners more than any other. And the subject we’re talking about?
How HMRC review VAT returns.
Because really speaking? This is the nitty-gritty of the tax investigation process. Because if you are due to have a meeting with HMRC – and you’ve read our last blog post on the topic – you’ll already know that, soon, you’re going to be facing some questions. And simple these questions may be, the one part of the inspection you don’t have any control over?
That’s right. It’s the VAT and tax information that you’ve already submitted. The information that your officer is going to be poring over. And meanwhile? You’re waiting on the side-lines, biting your nails and waiting for the all clear.
Nevertheless, even though a VAT inspection can be a daunting prospect, today, we can put your mind at ease – letting you know just what, exactly, your HMRC officer is looking for.
So, without further ado…
How VAT reviews work.
Like we mentioned in our last post, when undergoing a VAT inspection, your HMRC officer is going to review at least one VAT return in full detail. And whilst this includes checking source documents and all kinds of receipts and invoices, there’s one extra, crucial detail to bear in mind.
Your officer will also make checks to verify the credibility of your returns.
What does this mean?
It means your HMRC officer is going to do a lot of double-checking, referencing stated figures against other sources of information. And a lot of the time, these sources will be out of your control.
For example, say you sell gardening products and goods. You’ll have stated in your tax returns the recent purchase receipts for a certain quantity of compost – compost you plan to sell on.
However, your HMRC officer? They might just go and speak with the wholesaler you’ve bought from, double-checking that you didn’t buy more stock than you’d stated.
And discrepancies like these? They don’t look great.
After all, if your wholesaler says you’ve bought twice the amount of stock, and now its nowhere to be found, with no record of its sale or your profit?
You can probably guess what HMRC would make of that – even if it’s an honest mistake.
So if you’re a little worried about the validity of your records? As we always say, it pays to be prepared. And if in doubt? Get in touch.
But how does the investigation work once the meeting’s over with?
Whether you’ve experienced your first visit or not, it’s best to realise early on that your meeting with HMRC isn’t the be all and end all of your VAT inspection. And with this in mind, it’s wise to expect further correspondence, usually with HMRC summarising their visit, along with any recommendations they have or errors they’ve found.
Now, that’s not to say they’ll be getting back in touch for certain. But if they do?
It can actually be pretty helpful. Especially if they’ve suggested steps for you to take to improve your records and returns.
But what if I leave my records and returns to the professionals? What if I leave my records to a computer system, even?
Well, fear not. Because if your business uses a form of software that helps you keep your accounting in order? Usually, HMRC will send out an officer who specialises in your chosen system. This is the same for subsequent visits, too – visits made to double-check that best practice is still being adhered to.
So they’ll be coming to see me again?!
Unfortunately, sometimes, this is considered a necessity. But its always worth remembering, HMRC have their own set of strict guidelines – like we mentioned in a previous post.
So worrying about HMRC playing dirty? Realistically, it’s just not that likely to happen.
But that said – it’s not unknown for HMRC to send out specialist anti-avoidance officers to visit your business: officers who are specifically looking for fraudulent activities due to behaviour they might’ve deemed suspicious.
And visits from officers like these? They can be incredibly stressful. Especially if they ask you to make a comment on the record whilst you’re feeling flustered.
So if you’re feeling uncomfortable during an investigation?
It’s always best to remain polite and helpful.
But if you feel you are being wrongly pressured? Remain polite but firm. Ask for time to speak to your accountant or your business adviser. Get in touch with us, even.
And failing that? Tell them that whilst you are happy to answer questions, you would like reassurance of the reason behind the questioning, so you can give proper consideration to how you can provide the correct answer.
So what can I take away from this if I’m facing a VAT Inspection?
Ultimately, the only thing you should have to worry about when facing an HMRC VAT inspection is whether or not you’ve done your best to keep your records and returns in order. Because if you’ve made sure your returns have always been crystal clear and one-hundred percent correct?
Really speaking, you’ll have no issue with HMRC whatsoever.
But if you’re concerned about an error you or your accountant might’ve made? It’d be wise to seek advice; with HMRC reviewing your returns and double-checking them against any number of sources, it’s unlikely that those mistakes will go missed.
And it’s unlikely you’ll be happy facing a penalty, either.
So with all that said? If you’re facing a VAT inspection? Get reading our FAQ.
And if you’re still a little unsure as how to proceed?
Get in touch. We’ll give you peace of mind.
The Tax Haven.