HMRC officers no longer manage their own arrangements for VAT control visits to registered traders. These are normally arranged from centralised services with access to officers’ work plans or diaries. The
VAT registered trader will receive a letter setting out the time date and venue for the planned VAT control visit and give outline guidance on records that the visiting officer will want to see.
Changing the Date and Venue
The Customs appointments booking service are usually helpful if the planned date and venue are not convenient for any reason and a simple telephone call usually serves to rearrange the details of the visit. Officer’s prefer to visit the main centre for the registered trader’s business but will attend professional offices if requested to do so initially and follow up with a visit to the trader’s site by direct arrangement if deemed required.
Preparing for the Control Visit
Good preparation will ease the burden of the visit and the following guide covers some of the issues for the registered trader to think about before the visit:
- Have there been any changes e,g. ownership, trading style or any significant change in business activity and have these been notified? If so, deal with this and retain copies of correspondence for the visiting Officer – sometimes it can take several weeks for systems to be updated.
- Newly registered traders often experience difficulties on the occasion of their first control visit and some issues often have a significant impact on the business. Typical areas of difficulty include:
(i) Date of registration under mandatory registration turnover rules.
(ii) Pre-registration input tax reclaimed on first return. Registered traders generally often have difficulty with:
(iii) Misunderstandings on operation of and detailed compliance on Flat Rate and other Retail, Second Hand Goods and Tour Operator schemes.
(iv) VAT rates applicable to business transactions.
(v) Non-business transactions and recovery of input tax.
(vi) Partial exemption and recovery of input tax.
(vii) Land and property. If you have any doubts in regard to particular transactions then a telephone call will often serve to confirm the position or enable you to prepare your response should the subject crop up.
Previous Control Visits and Dealings with Customs
- Correspondence following any previous control visit should be reviewed particularly if there were any follow up actions determined or agreed.
- Copies of any written advice given by Customs on particular issues or any notes of telephone calls to the National Helpline, with call reference numbers, and details of any published information from Customs website or other leaflets and notices relied upon should be available in the event of disagreement by the visiting Officer – this type of information may help to mitigate potential penalties if there has been any previous misdirection or misunderstanding.
- Many professional firms and a number of trade bodies offer tax investigation insurance schemes designed to mitigate the cost burdens of dealing with disputes with Customs.
- The key word here is “dispute” – costs associated with preparing for control visits and gathering and providing information to Customs is not usually covered. Similarly dealing with basic bookkeeping and arithmetical errors would not usually be covered.
- None-the-less a disagreement with Customs may arise from the Control Visit on for example the VAT rating applied to particular transactions or perhaps the basis of calculation of apportionment between business and private items or partial exemption calculations. For FPI purposes the “dispute” starts at the time that Customs say they disagree.
Professional Representation at Control Visit and on Follow up
- Officers will usually agree to deal with agents provided that they have the necessary authority from the registered trader to do so.
- If such a form of authority is not already in place Officers will accept an authority in the appropriate form presented at the time of their visit.
Premises/Venue for Control Visit
- An Officer will usually prefer to visit the trading premises simply because to do so provides a better insight to the business operations and opportunity to spot potential areas of concern.
- Typical examples arising would include vending machines and scrap metal bins on site that will be noted and the accounting for output tax checked.
- A pre-visit walk around is recommended.
- Prepare a room or working space for the visiting Officer. Most will bring laptops with them and require power points for their use. A secure area to accommodate the visiting Officer enabling papers etc, to be secured during lunch and smoking breaks will help and do not forget to brief the Officer on health and safety, emergency exits and fire assembly points as you would any other visitor to your premises.
VAT Health Checks
- Arranging a professional pre-visit VAT health check will assist the uninitiated.
- Such services are designed to mitigate liability and identify savings for the business as well as addressing compliance.
- An initial discussion and information gathering exercise on compliance on registration, business details and operations and changes within the period of the review. Customs Officers would expect the registered trader or authorised representative thereof to be present for this initial session. The Officer will plan their work having regard to the information provided and their previous knowledge of the business.
- Detailed review of the records.
- Closedown meeting identifying areas of concern, further detailed questions and arrangements for dealing with unresolved items.
The detailed aspects of the visit will vary according to circumstances and the visiting Officer’s own experience and discretion. If you are not professionally represented at the meeting, remember:
- The Officer is doing their job – a helpful, courteous and friendly approach will help on scoring co-operation for mitigation of penalties should this aspect need to be considered.
- Only provide answers to questions where you are confident that the answer you give is accurate. Do not guess; information or comment made on an uninformed basis may be used against you at a later date! The Officer should allow time for consideration on responses when requested to do so.
- The four year cap generally prohibits claims or reclaims on transaction over four years old at the time of the visit.
- Although many Officers will seek to be helpful in identifying overpaid tax in the review period this is not generally part of the job description and the onus is on the trader to establish any overpayments.
- The Inland Revenue and Customs are now one department – HM Revenue & Customs. Visiting Officers will liaise with their counterparts in other departments covering income tax etc. Putting aside penalties and interest the maximum VAT liability on underpaid VAT reflects the standard VAT rate i.e. 17.5% whereas the maximum liability on underpaid tax on profits reflects the higher rate of income tax at 40% plus National Insurance Contributions.
- If the Officer makes or indicates their intention to make a direction. Do not offer an acceptance or agreement but state the need to take professional advice.
- Officers generally have significant powers in terms of entering premises, seizing documents etc. A sensible and reasonable approach in making arrangements with the Officer to satisfy the requirement is preferred as opposed to formal proceedings. Ensure wherever possible that you retain copies of documents, back ups of electronic files etc. in such a situation. Consider requesting professional representation when appropriate.
- If the Officer issues any form of warning or presents information, usually in leaflet or notice form, on Civil and Criminal procedures and settlements then immediately seek to close down the meeting and rearrange on the basis of requiring professional representation.
Assuming that no serious or significant matters arise then apart from being concerned to make assessments to recover tax unpaid by way or error or mistake the Officer may seek to be helpful by suggesting that you might consider changing the way that you deal with VAT matters ranging from fairly simple and straightforward matters such as your return accounting dates to more complex use of VAT schemes etc. These are recommendations for you to consider and you should bear in mind that there may be other circumstances or information not privy to the Officer on the day of their visit that may be pertinent to considering these aspects.