Getting Ready for VAT inspection! Couple questions...

seismicryan

So as the title says, I have been told that HMRC will be doing a VAT Inspection of my business..

Has anyone got any experience with this? Is there a reason they ask to do one, and will therefore be looking for somethig specific, or are they random?

I keep very good accounts and records, so I should not really have anything to worry about, however I do have one question about one area that I am not sure if I have been handling correctly...

I wil try to give an example without actually going into details of my business

Let's say you run a clothing shop, and you and your staff are required to wear the clothing from your shop. Your give yourself and your staff the clothing for free and for personal use. The clothing you have bought in and paid VAT for upon purchase are now being used by the business. How should you record the transferring of the products from your stock to no longer being in stock, when they have not been sold, and therefore no VAT has been charged and received in relation to them?

Hopefully someone can help me make sure I havn't done anything wrong

Ryan

bengalknights

Should it be taxed as benefit in kind if its been given for personal use.

Majority of times HMRC seem to look more towards expenses and small value/non limited company invoices that could easily be doctored that are on your purchase ledger.The rest is checking that your sales vat adds up

nikki1520

And from a vat point of view, you should have accounted for vat on the purchase price of the goods. Unless the items are specifically uniform- that is to say, that no one in their right mind would want to wear them out to the pub on a Friday night, or are kept at the place of employment- the employee arrives and leaves in their own clothing

seismicryan

Bengalnights, do you mean they are basically looking for falsified stuff? I don't do any of that.. if there are any mistakes they would be purely innocent..

Nikki, vat has been paid on the goods that are used for staff use... im just wondering what is the correct proceedure for accounting for goods that are bought in, and used by staff and hence no longer in sellable stock..

Thanks
Ryan

runninglea

goods that are bought in but not for resale should be put in an expense code such as repairs & renewals or sundries but not in purchases.

The vat people normally look at every company every 4 years. When they come make sure you have everything to hand that they have asked for.

runninglea

also put some company emblem on the items of clothes that they are given. Not a bik then as would hardly go out in clothes with a big McDonalds sign on for example

nikki1520

What I mean is, of course you've paid vat to your supplier, but you also need to charge yourself vat on the same amount when the items were removed from stock..
As an example, item costs £1 plus 20p vat. This is your input tax that you claim back in box 4 of your vat return. When you remove the item from stock for staff or personal use, you then account for 20 p vat in box 1 of your vat return, as if you'd sold goods for £1. Don't forget to increase your sales in box 6 as well ( think that's the right one!) else it looks like you're declaring output tax at more than 20%

Hope that makes sense?

seismicryan

runninglea.. maybe the clothing example was a bad example... i was just trying to think of an example which is not actually what our business does... lets imagine a company that sells football boots and the company has a staff team and all staff are given boots to wear when playing football.. again not what we do, but just an example...

Nikki, thanks, I get what you mean... so, even if the staff don't buy the items from the company, we put down the cost value and cost vat amount on the VAT return? would we not need to have raised an invoice for that?

seismicryan

sorry one other thing, is it the same if you give something away as a freebe, prize etc?

martindow

I worried a lot in advance but it was a fairly painless experience.

The important thing is to have all the paperwork in order. A lot of it was checking a selection of invoices and receipts to tally with expenses in the books and making sure that our sales had the VAT accounted for. They found a few discrepancies (including some I had found when checking through myself) some of which were in our favour and we just included these on the next VAT return. I got the impression that they only raised it officially with a fine if there are systematic faults or the accounts raise other suspicions. They are looking for people working the system rather than the odd error.

Plying them with tea, coffee and biscuits does no harm at all.

crazyguy

runninglea wrote: »

goods that are bought in but not for resale should be put in an expense code such as repairs & renewals or sundries but not in purchases.

The vat people normally look at every company every 4 years. When they come make sure you have everything to hand that they have asked for.

With 10 years worth of trading never once had a vat inspection,