Bank finance articles and tips

What is a VAT investigation?

A VAT investigation is a detailed enquiry into a business suspected of deliberately evading VAT and is conducted by specialist VAT officers employed by HM Revenue & Customs (HMRC), the government department responsible for the collection of taxes.

A VAT investigation can be undertaken into any VAT registered or registrable business and involves officers visiting your premises and examining particular records

Why is my business being investigated?

Your business may be the subject of a VAT investigation for a number of reasons.

Popular triggers include:

1) Trading within a typically high risk business sector, such as alcohol, tobacco or high value MTIC goods.

2) HMRC has examined your customers or suppliers as part of a full supply chain investigation

3) Sudden VAT repayments are being claimed

4)VAT repayments are higher than normal

5) HMRC has received information about your business

6) Your business has failed VAT return credibility checks

7) During a routine VAT visit, a VAT officer identified something in need of further investigation

Has a VAT investigation already begun?

If an investigation is underway, you are likely to be notified at some stage by letter from a VAT officer. This letter will outline the fact that an enquiry has commenced into your VAT affairs.

Alternatively, a Notice of Inspection may be issued, advising of a VAT inspection date. Within this inspection, the VAT officer(s) will review various financial records to aid their investigation.

In conjunction with a Notice of Inspection, you may also receive a Notice to Produce, which means that you have to produce specific documents and records in line with the officer's requirements.

In the most extreme of cases, VAT officers may turn up for a visit to your business premises unannounced. At all stages, it is wise to seek the professional advice of a VAT specialist.

Will I be interviewed by HMRC?

As part of a VAT investigation, it is highly likely that HMRC will wish to conduct a face to face interview with you. This is especially true of those who are being investigated under the Civil Investigation of Fraud procedures.

When being interviewed, HMRC will invite you to a meeting at their office. You will be provided with an overview of the meeting process in advance and have the opportunity to have an adviser accompany you to this meeting.

It is strongly recommended that you seek professional assistance from a tax adviser at this point (if not sooner) - even if you feel that you have nothing to hide, your answers may come back to haunt you in future, so it is vital to be informed.

Can HMRC take my financial records away?

Yes, VAT officers can take records away. Often however, VAT officers will simply request copies of certain documents. This could be because the officer wishes to examine your records in more detail back at their office or if HMRC has a specific interest in your supplier or customer.

On the other hand, if a full VAT investigation is taking place, HMRC will request original copies of your records. If this happens, remember to request a receipt detailing which documents have been taken by the officer(s).

What is the next step?

Once you have met with HMRC, they will review the information and make a decision on whether any further action is required. This could take the form of a VAT assessment, which outlines the amount of evaded or over-claimed VAT.

HMRC will take into account your level of cooperation throughout the investigation process as well as the seriousness of the VAT errors. They will then come to a decision regarding the potential penalty and monies owed.

Will HMRC publish my name and details of my penalty?

Naming and shaming can occur in certain circumstances and this helps to act as a suitable deterrent to others. However details will only be published in cases where the VAT amount exceeds £25,000. Naming and shaming will only take place in the case of those who have been penalised for deliberate tax errors. Those who have submitted a late return or failed to pay VAT on time will not be dealt with in this manner.

To conclude, being subject to a VAT investigation can prove to be a troubling time for most individuals and businesses. For this reason, it is best to seek professional advice at the earliest opportunity. This will ensure that you are fully informed about the process and help to minimise the VAT charges and penalties that you may face as a result of the investigation.

Don Mavin writes on behalf of Mavin & Co, UK specialists in Tax & VAT Investigations.

By Don Mavin