Vat inspection help please

Coochland

Hi. What will I need exactly. There's no way I can have every piece of paperwork sitting on a desk ready.

Will they ask for specific months etc?

Can you just do printed out summerys of months.

What about missing paperwork will they seriously check for every invoice/reciept from the last 6 years?? Surely that would take days to go through

Do you need annual accounts?

JasonLVC

This should all have been explained to you in the formal letter HMRC should send to you when making the appointment to come and inspect your business.

HMRC will request the last 4 (four) years of accounts and paperwork such as invoices, VAT returns, etc but they will usually only look at the current or last financial year and only if they spot big problems there, will they then look all the way to the four years.

Best best is to have two years worth of VAT returns (and supporting schedules) and sales and purchase invoices for starters - that should be sufficient.

The format it will take is to a VAT return and then audit it right back to source documents. So if you stated on your Jan 11 VAT return you made £10,000 of sales then HMRC will want to see invocies totalling £10,000 and they'll cross reference that against bank statements. HMRC will do the same for purchases.

basically they are checing to see that you are correctly charging VAT on your sales invoices and that you are reclaiming VAT correctly on your purchases (ie, your purcxhase invociesa re legit and not scraps of paper with made up numbers on them).

They'll not check for every single invoice/purchase, they will focus on the larger values so if they get close to the figures on your VAT return they'll be happy. A schedule/print out of sales and purchases for each VAT return period would be very helpful for them.

Inspectors always ask for two days but generally finish up in one day - very rare to go into 2 days unless business is large or it is getting loads of stuff wrong.

But the more paperwork you have available the better the impresion you will give. Nothing screams "dodgy" than a business that has a carrier bag with some scraps of paper in it, presented to HMRC.

You don't have to spread 4 years of files out on a table for them, let them ask you for what they want and then go pull it off your shelf/hard drive and give it to them is perfectly acceptable.

martindow

There was a previous thread on this that may be worth looking at

https://forums.moneysavingexpert.com/discussion/3481889

Hope it goes well. I found that it was a huge worry beforehand but no real problem on the day.

Cardinal-Red

I was a VAT visiting officer in my former life. I can tell you that the visit will go something like this.

Your officer will have pre-printed and analysed details of all your VAT returns for the last 4 years or so. This will have trend analysis, identification of various liabilities of sales, identified high expenditure/low profit periods, details of imports/acquisitions etc.

There will be a "friendly" chat - tell me about your business - with lots of seemingly innocuous questions, but all the while your officer will be building a mental risk profile in his mind as to what areas are under control, what areas might be looked at, what areas scream "problems!"

He will then, as suggested elsewhere, choose a "random" VAT quarter and seek to rebuild it from source records. There may well be two quarters done like this... one for your sales, one for purchases.

Other checks they are almost certain to do are:

- motor and fuel expenses
- a reconciliation between bankings and declared sales
- equally for debits to your bank account/petty cash versus purchase invoices
- if you have annual accounts, a reconciliation between those figures and the ones on your VAT returns
- checks on your creditor ledger for unpaid invoices on which you have claimed input credit
- mark ups and basic credibility checks based on what he finds
- treatment of disposal of non-current assets (especially vehicles)
- looking at high value invoices to determine business use/deductibility etc
- credit and debit notes
- any claims for bad debt relief made
- anything on the returns that "looks odd" - i.e. large volume of unexpected zero rated sales
- a check through most of your VAT working papers to see any interesting adjustments etc

That list looks long and horrific but it's really not. So long as you're doing things right... it should all be routine.

If they do find something "wrong" - advice - don't admit/agree/change anything on the day. Stay friendly, helpful and co-operative, but ask for time to verify... and come back here for advice!

HMRC VAT officers are NOT infallible and DO make mistakes - believe me... I saw plenty of them in my time there, and make a good living out of them now!

Any questions, give me a buzz!

dharm999

We had a VAT inspection about 3 weeks ago and it was a shock to be honest, in a good way. The inspector had written to us before hand and said they wanted to look at the last 4 returns, plus backing documents that showed where the figures on the returns had come from. They also wanted to see 20 sales and purchase invoices at random, which we selected. When she came, we had a brief chat about the business. Areas she covered were; general review of the business, how did we account for cars and fuel, and did we lease any cars, if so, did we account for VAT correctly. She then looked through the 4 quarters returns, and was gone in about 30 minutes! She pointed out a couple of things that we werent doing correctly, but they were minor, and to our advantage.

Overall it was the easiest inspection I've ever been through.

helencd2002

Hi
Am taking over the book-keeping for my fathers business, and am curious - the 4 years, are they 4 calendar years or 4 financial years ie:
If we were to get a VAT inspection this year would it be from April 2008 to present (april 2008,2009,2010, Oct 2011), or the full 4 calendar years from October 2007 to present? All very confusing, not got one, just need to know how far back I have to go with the filing.

Cardinal-Red

Record keeping requirements are slightly different. For VAT it's 6 years, and I think if you pay CT then it's five years from your filing date.

It is HMRC's powers to assess under normal circumstances that are limited to four years - the exact date differs slightly depending on whether the error is related to output tax or input tax, but broadly speaking, some 2007 periods are still assessable.