My Experience of a VAT Inspection & My Tips

It has been about 5 years since one of my clients had a visit from a VAT inspector. It always comes as a bit of a shock when they do want to arrange a visit especially this time as I was just about to go on holiday and they wanted the visit the week I got back! 

There is, of course, always concern that they have a specific reason for visiting which they are not going to tell you about until they arrive!  This VAT inspection was with a business which hasn't had a visit for almost 20 years even though it has quite a complex VAT situation.  

We prepared 4 years worth of VAT returns and supporting calculations together with 4 years worth of annual accounts as requested and had numerous piles of paperwork available in order to produce whatever evidence the inspector requested to support specific entries.

Two HMRC officers turned up - one to look at the VAT and one to look at tax - which was a surprise as the HMRC letter had only advised of a VAT inspection.  Later they told us they always go out in twos now, whereas at previous inspections I have attended it was only one officer. 

I was not concerned about the visit because I knew that I could produce whatever was asked for and explain every transaction that had been entered and its VAT treatment.  Whilst I don't do the sales invoicing my client was also confident with the VAT treatment of sales.  

A whole day was booked for the visit but in less than 4 hours they had both completed their investigations and left.  And I have to say I was more than a little chuffed when they said they didn't need to look at more than one VAT quarter and one year of accounts - they were happy with what they saw, the paperwork we produced and our answers to their questions. It was good to be prepared though and I didn't feel the time I had spent the previous day reviewing the VAT returns so that the transactions were familiar to me was wasted.

This is the 10th VAT inspection I have attended with a client in the 15 years I have been in business and I have maintained my 100% record of the inspector not identifying any inaccuracies!  

It is very unusual these days for VAT inspectors to attend a business to review records.  Over the last 5 years it has been more usual for them to phone and ask for a copy of the detail behind a specific VAT return and then request supporting evidence of particular transactions to be sent by email.  To be honest I prefer the visit because you have a chance to answer their questions and explain as they go through it.

I have found VAT inspectors to be far more helpful and supportive in the last few years than they used to be.  The first few I met were really quite scary and they were definitely out to find something wrong (or perhaps I just felt that because I was less experienced than I am now!).  

So while this VAT inspection is still fresh in my mind I thought it would be useful to write down a few tips to help you to be ready if you have a visit:

• Don't try to deceive them - claim and charge VAT appropriately for your business - and then you will have nothing to worry about when they do visit
• Review all the VAT returns they have requested to see in advance of the visit so you are familiar with the transactions.  Identify any transactions which you think they may ask about and be prepared to explain why they are included.
• Provide a suitable space for them to work and provide them with the returns and accounts they have requested.  You don't need to provide all the supporting paperwork initially as they will expect you to find the paperwork they subsequently request.
• Always file your paperwork in a way that you can find what you are looking for so that you can quickly produce what they ask for - the longer you take to find the invoice they have asked for the longer they will have to identify more evidence they want to see
• Make sure the officers who turn up identify themselves and you understand what taxes they will be looking at
• Be prepared to answer questions about your business, your income streams and your assets as they want to get a picture of what you do and the income and expenses that go with that.  

If you have a good bookkeeper you will have no concerns about having a VAT inspection because the bookkeeper will understand VAT codes and what can be claimed.  If we carry out regular bookkeeping we will happily attend VAT inspections because we know the records will be accurate and we will have seen the paperwork to support the VAT claims.