A VAT Inspection can immediately cause stress, anxiety and panic, and has long been associated with being every business owners worst nightmare. However, knowing what to expect and getting prepared can really help for the visit from HMRC so that the inspection can be carried out quickly and without too much fuss. In this article we give you a brief synopsis of what VAT is and who has to pay it before giving you tips to help you prepare for a VAT inspection, what you might expect on a visit from HMRC and what happens afterwards.
What is VAT and who has to pay it?
Value Added Tax (VAT) is charged by businesses on services or products at the point of sale and the customer pays it. There’s no getting away from, working out your VAT is painstaking, complex and time-consuming. What’s worse is if you get it wrong, you can incur some heavy penalties. Whether you have to legally register for VAT or not is dependent on your annual turnover and the type of products you are selling. The current VAT threshold is £85,000 and so if your business turns over this amount and more, you must register for VAT and complete a return. Currently, there are 3 rates of VAT, namely Standard, Reduced and Zero.
Why is HMRC carrying out a VAT inspection on my business?
In a nutshell, the purpose of a VAT inspection is to check you are paying and reclaiming the correct amount of VAT. Today, VAT inspections are triggered by HMRC risk assessments. There are a number of reasons why you may be visited including a change in your level of VAT repayments, a credibility check on your business when compared with similar enterprises, the risk of your business sector and a comparison of your annual account figures to the VAT return figures.
What do HMRC do if they plan to visit?
- You are usually contacted by HMRC to arrange a visit
- You can expect about 7 days notice
- HMRC will confirm what information they want to see and how long the visit is likely to take
- HMRC will inform you if they want to inspect your premises
Whilst you can ask HMRC to delay their visit, it’s possible that they will visit without an appointment and/or telephone you about your VAT. The regularity of the checks depends on the size and complexity of your business and whether you have submitted late or incorrect VAT Returns before.
What to do for an impending VAT inspection visit?
- Review your accounting records
- If you cannot do this, ask your bookkeeper to help you
- Make any improvements or corrections before HMRC arrive
- Your bookkeeper will help you to access your accounting processes and suggest improvements
What happens during the visit?
If you have any problems with your VAT, HMRC will work with you to right any problems. You will also be advised about any additional tax or penalties you have to pay. It is certainly in your interests to be helpful, as this will help to reduce the amount of the penalty.
What happens after the visit by HMRC to carry out a VAT inspection?
At the end of the inspection, the HMRC officers will set up a meeting to discuss the findings. You will hear in writing from HMRC about any concerns or issues that they have found during their visit.
- What you must do to improve your VAT record keeping
- Any corrections you must make to your VAT account
- Whether you are overpaying or underpaying your VAT
- Any penalties you have to pay
If any serious problems are discovered, fines can be levied of up to 30% of the underpaid VAT.
How can Caroline Streatfield Bookkeeping help you with your VAT returns?
Many business owners dread being told they have to have a VAT inspection. However, with the right advice, transparency and being compliant, you should be able to come through the process relatively unscathed. It is crucial to prepare yourself for a VAT inspection and talking to a professional bookkeeper about the ins and outs will put you in good stead. If you need help with your accounting records, why not talk to the experts at Caroline Streatfield Bookkeeping? We work with a lot of start-ups and SMEs who find keeping track of their finances essential for keeping their companies running smoothly. For more information, call Caroline on 07982 682746 or 01323 885205 or email info@bookkeepereastbourne.co.uk
Ksenia is the newest member of the team. She previously worked as a bookkeeper and has a good technical knowledge of keeping records for small businesses on 