Does your e-commerce business have a VAT inspection on the horizon? If you do here is a guide on how to prepare.
Discover the reason for their visit
Unless it is immediately apparent, it is recommended that you attempt to find the reason for the visit. The visit may be due to the submission of an unusual VAT return, particularly if it indicates a repayment of VAT when you normally pay VAT. The HMRC may hold the VAT repayment until it has been assessed via a pre-credibility visit or repaid with a post-credibility assessment. If you have made a large purchase recently, it is recommended that you send HMRC the purchase details when filing the return as this could answer certain questions, avoid visits, and hopefully speed up any VAT repayments.
Confirm the records required for inspection
When a visit from a VAT inspector is announced, it is advised that you confirm the records regarding the VAT periods required by the officer for inspection. It may also be worthwhile ensuring that the correct people are available to discuss the VAT records, especially if this is an initial VAT inspection for the business. This will help you to provide a more comprehensive summary of paperwork, such as a flowchart of procedures or business structure. If specific access requirements are necessary for records, it is advised that these people are available to allow access for the VAT inspector. If there are no spaces available at your premises, this should be discussed beforehand and an alternative location arranged with the inspector.
Don’t be too hospitable
VATGlobal advise that when the VAT inspection officer arrives, it is advised that you offer the set level of accommodation and hospitality. While a person may consider being overly-hospitable, this may be viewed as suspicious behaviour and could cause alarm. A tour of the company with explanation of procedures and demonstration of products is suitable, but any ‘kissing up’ is not acceptable. Refreshments can be offered, be sure to provide the inspector with a convenient location to work, and explain potential safety procedures including fire alarm tests to reduce risk.
Allow time for the visit
It is highly recommended that you allow plenty of time for the assessment and ensure that the relevant people, records, and suitable space is available for work for as long as necessary. If this is not convenient, for whatever reason, you must make it clear in advance to allow for rearrangement of the VAT inspection. Failing to make rearrangements can cause the VAT inspector to become suspicious regarding why the paperwork and people are unavailable, as well as why you feel the need to rearrange the visiting date.
Make use of the inspector
Believe it or not, it is possible to benefit from a ‘tame’ VAT inspector visiting your place of business. If you have any queries or concerns requiring clarification, they can be made known to the officer and dealt with at the inspection. If the inspector is unsure of what to do, then they can be passed onto the correct department for a response. The primary aim of a VAT inspection is for the agent to represent the HMRC and monitor a company’s tax; therefore, if you have any plans that could influence your VAT you should ask for assistance. Expanding into international sales or purchases, the change of legal entities, and business diversification are all examples of these plans.
Ensure responses are recorded accurately
If the VAT inspection officer offers advice, provides guidance, or asks for responses to certain queries, it is advised that all of these responses are recorded correctly to clarify any items that may be unclear at that time. You can always request that this be done in writing to confirm the details and it will allow other individuals to contribute to the response, such as an accountant or financial advisor.
Ensure the officer has finished with records
When dealing with a VAT inspector, it is essential that the officer remove or close files with individuals and other people before completing the inspection. The HMRC has the power to remove files if they are unable to correctly assess the reports or require further analysis. The inspector may also wish to return to the file at a future date if the correct information has not yet been obtained.
Unearth errors and amendments
Reviewing of VAT accounting records can easily unearth financial errors and amendments that will need to be made. When these errors are discovered as a result of the VAT inspection, they are considered to be in the ‘shadow’ of the inspection and are treated more severely than financial penalties. This, however, should not stop companies from disclosing issues that are discovered as this could result in the need for a fresh financial approach to VAT accounting.
Remember assessements take time to process
Once the inspection has been completed, you may not experience an immediate assessment from the HMRC. This may not be a problematic issue as VAT assessments tend to take time to process and inspectors will typically provide advance drafts of concerns with an invitation to respond in a set timeframe. The invitation allows you to review errors and provide suitable explanations for any concerns. This may be a good time to hire professional accounting services for assistance.