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VAT Control visits by HMRC

Recent VAT inspections by HMRC seem to be widening into more than just VAT matters. Since HM customs and excise and the Inland Revenue now work more closely together, there has been a noticeable increase, in last 5 or 6 months especially, of reviews of Tax Returns, Accounts and VAT returns. This is directly following recent select committee criticism at the House of Commons that there should be more inspections.

In a lot of cases the inspectors already have obtained copies of the annual Accounts and other documentation from the Direct Tax section of HMRC. Also details from the PAYE arm which deals not only with PAYE but P11D’s etc.

A fairly regular point of analysis by the inspectors is to compare the sales total shown by the four quarterly VAT returns with the same figure for sales in the Accounts of the business. Any discrepancy between these figures frequently leads to one of two outcomes:

1. If the sales in the Accounts are higher than those on the VAT return the HMRC will frequently issue an assessment for the VAT

2. If the sales on the VAT return are higher than those in the Accounts the officer will notify his direct tax colleague who will consider charging additional Income Tax or Corporation Tax.

Unfortunately these officers are reacting to the fact there seems to be an underpayment and therefore issuing an assessment when there could be some logical reasons for differences between these two figures which can include any or all of the following:

a. Sales figures in the VAT return would include sales of any items of equipment or plant whereas these would be shown separately in the Accounts.

b. If the business uses ‘cash accounting’ for VAT purposes then the Accounts are bound to be different because they will include adjustments for debtors and quite possibly ‘work in progress’ which will not be reflected in the VAT returns.

Therefore when submitting a VAT return it is quite a good idea for any business to just consider why there might be discrepancies between sales figures in the VAT return quarter vs general sales for that quarter on their records.

(This is for general guidance – specific professional advice regarding individual cases should always be be taken before you take any action)

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