Do you have a VAT inspection coming up?

24 January 2011 

A VAT inspection from HMRC is likely to be a daunting prospect, but be prepared and it will go smoothly.

Before the Visit

Make sure you have copies of your annual accounts, VAT returns together with all back up for the last six years.

It is a good idea to refresh your memory if there were any unusual transactions or adjustments that were made on your VAT returns prior to the big day so that you can answer all questions and do not feel flustered.

Set time aside in your diary for the visit and make sure that your book keeper and accountant are available if they help you prepare and submit the VAT return. Make sure you have given authority for your accountant to speak to HMRC on your behalf using a form 64-8.

On the Day

The inspectors will wish to speak to the business owners and will cover the following areas: 

• Contact - They will confirm that the contact details they hold for the business are correct including address, telephone number and name of key contact
• EU - Do you sell/buy within the EU – special rules apply and so they will want to discuss whether you charge VAT on invoices to the EU and how you reclaim any input VAT incurred
• Overview – They will have prepared an overview of the submitted VAT returns. If there are unusually large variations in either sales or purchases, they will want to understand why this is. They will also attempt to reconcile the net sales figures to your accounts. Be careful here as statutory accounts will have accounting adjustments for accrued income and so may not match. This is not a problem but you need to be aware of what these adjustments are and how much they are in value to explain the difference
• Land – special VAT rules apply to land. The inspectors will want to know whether you own/lease/rent your office/business space.
• Advertising – they may ask how you advertise your business and the costs involved. They may be looking for corporate hospitality/sponsorship packages at sporting events where they may be an element of entertaining and so no VAT reclaim allowed.
• Staff – although not directly related to VAT, they will want to have an overview of what resource you use within the business, whether they are full/part time and whether you use contractors. Be careful if you use self employed or contractors on a regular basis as HMRC may deem them to be employees and will seek payment of PAYE and NI.
• Other Businesses – do you own or are involved in any other businesses? HMRC will want to ensure that VAT is correctly calculated on any transactions between them.