VAT - Check on clients business

VAT - Check on clients business

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Hi all,

I have a client, a small chip shop (self employed, not registered for VAT) received a letter from Vat saying they want to visit and want to learn more about the clients business. They want to see business records, bank statements, purchase invoices etc. Turnover has increased since the last year and clients suggests that sales will probably reach the Vat threshold by January 2016.

As the agent, holding 64-8, I have not been informed of a check by HMRC. Will it be better for me to be there with my client? Or shall I have a meeting with the client prior their arrival and not go and let the client deal with them as the client will be answering the questions asked.

Thank you in advance.

Replies (43)

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By pawncob
24th Nov 2015 12:27

GO

Inspections of non VAT registered businesses are very one sided. The HMRC agenda is obvious and if you value your client attend and defend him against the HMRC bamboozler.

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By Andp
24th Nov 2015 12:37

Yes YOU should be present at the meeting with the VAT inspector. You can then make representations on behalf of the client. A briefing with the client the day before the meeting will also help. 

Ensure ALL paperwork requested is easily accessible - hard copy / digital formats. Only show HMRC business records, if that is all that is requested at this stage.

May I ask , have you had much face to face dealings with HMRC during past inspections ?

Client should not wear their Rolex to work that day and the Porsche should be left at home ( if applicable ) lol 

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By Whinger
24th Nov 2015 12:44

go

Go definately.

Be prepared too for very heavy approach.

A Client didn't tell me he had one coming, as the HMRC person was all lovely on the phone and said "oh don't worry it's just a quick check no need for agent to be there". 

It got very messy as client said all the wrong things and it's totally firefighting now. The client got things wrong in what he said (I don't mean just he said too much (he did) but also it wasn't correct! He said things like "we pay cash in hand" - meaning they pay staff in cash - but it's accounted for correctly, but HMRC took it as "cash in hand nudge nudge wink wink"))

Meeting before with client. Twice. Be there at visit. Keep client quiet as far as possible and be prepared for a battering (no pun intended).

If you're in anyway unsure of enquiry, please get someone to advise you (even if it's from behind the scenes). 

Could be not as bad as this, sorry if I'm frightening you, but the recent one we had was horrid because I didn't know about it until after the event. Had I been there, things would have gone very differently.

Check also, who is coming? Which office are they from? If it's "Disguised employment" and or "Hidden Economy Team" then be super diligent.

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By Andp
24th Nov 2015 12:57

Good cop makes the phone call and then bad cop turns up.  Every inspection should be treated with respect and seriousness. Just be confident and look them in the eye when you speak with the inspector.

Obviously you need to show them some paperwork on the day , but your client does have the right to forward "missing info" shortly after the meeting. 

Be prepared to say " we'll get back to you on that / with that ".

 

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By ersbed
24th Nov 2015 13:23

This will be my first inspection hence I'm seeking advice on how to deal with it. Do I need to call them to let them know that I will be there as well?

Another issue is that client does not have a business bank account, he used his personal bank and we had to pick some payments from that, therefore it is likely that the inspector would want to see the bank account

 

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By DMGbus
24th Nov 2015 13:47

Key factors to be forewarned about

This sort of inspection is likely to be NOT exclusively focused on VAT.

Here are a number of key points that HMRC are quite likely to focus on:

Accurate takings recordingProof that takings have not exceeded VAT registration thresholdAny associated businessesCompliance with PAYE regulations (eg. operating PAYE or if not then checking that all employees paid below NIC reporting threshold and all emplpyees certified that they are not in receipt of pensions or other PAYE income)Workers not claiming benefits or tax credits (or claiming tax credits and declaring wages)Workers have been checked as to right to work in UK (an employer obligation even if no PAYE scheme)List of employees name, addresses, dates of birth and NI numbersHMRC may well (I have actually seen this happen) take note of purchases from particular suppliers and compare them to suppliers sales records (reason: to identify suppressed purchases)

HMRC approach: Client is guilty until proven innocent.

Advice:

Check out the above points BEFORE the visit of HMRCAt the meeting take detailed notes (like HMRC will)

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Replying to Anonymous.:
David Winch
By David Winch
25th Nov 2015 14:37

This list

DMGbus wrote:

Here are a number of key points that HMRC are quite likely to focus on:

Accurate takings recordingProof that takings have not exceeded VAT registration thresholdAny associated businessesCompliance with PAYE regulations (eg. operating PAYE or if not then checking that all employees paid below NIC reporting threshold and all emplpyees certified that they are not in receipt of pensions or other PAYE income)Workers not claiming benefits or tax credits (or claiming tax credits and declaring wages)Workers have been checked as to right to work in UK (an employer obligation even if no PAYE scheme)List of employees name, addresses, dates of birth and NI numbersHMRC may well (I have actually seen this happen) take note of purchases from particular suppliers and compare them to suppliers sales records (reason: to identify suppressed purchases)

I could not improve on this list already posted here.

David

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Glenn Martin
By Glenn Martin
24th Nov 2015 13:49

Is it a new start up

or has a chip shop been there for a long time including the period your client has been there.

I say this because as fish and chips cost £6 a shot you don't have to sell that many a week of them to go over VAT limits. Its only about 30 or 40 portions per day.

These type  of inspections  are big money spinners for HMRC as if they can prove income supression of a few grand they can effectively collect VAT of £90k plus penalties and god knows what else.

Are his books robust and balanced and in good order.

The fact that your client states he was going to register in the New Year after they have contacted him is also a touch worrying.

I personally find it hard to believe a chip shop could operate pay its bills and provide a wage for the owner without been VAT registerred, unless it is a total new business in its first  few months of trading, an opinion that will be shared by the HMRC officer who attends.

My sister was wanting to buy a chip shop last year and to make any money you need to take at least £3k to £4k per  week.       

 

 

 

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Replying to Anonymous.:
RLI
By lionofludesch
24th Nov 2015 17:15

Bless me !!

Glennzy wrote:

I say this because as fish and chips cost £6 a shot .......... 

Not round here they don't.   Cultra - maybe.

UK average £3.30 apparently (at 17th November 2015).

£2.50 at the chip-oyl half a mile from us.

 

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By BroadheadAccountants
24th Nov 2015 14:04

Planning

I would be preparing for the meeting on the basis of what you are going to be asked.

 

I think you want to be able to demonstrate that the business is very well organised.  To this ends if it was my client I would be both at the meeting and having a preparation meeting.

 

The information should be complete and orderly in folders.  If the business is customer facing or there are privacy issues you might suggest meeting at your office instead.

 

Presumably you would want to be able to discuss what accounting system you operate and how the sales level is available therein to see the level relative to the registration threshold.

 

Whilst you can supply other information later on I would avoid relying on this.  It’s not a good look and extra effort to copy documents etc.

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By ersbed
24th Nov 2015 14:05

He has been trading for 3 years, his income is good as he has rental income from flat above the shop (60% of his income). As mentioned before client refurbished the premises and the sales increased as a result.

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By Cloudcounter
24th Nov 2015 14:17

Purchases

Have a look at his purchases.  Is there a regular weekly (daily)  pattern of deliveries?  Or might you find that he only has potatoes delivered three weeks out of four each month?  That's an old trick, when the fourth delivery is paid for in cash and the equivalent in takings is siphoned off.  Well worth a look

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By Tim Vane
24th Nov 2015 14:17

Sounds like you are in trouble. Run through some numbers comparing what the client is telling you his turnover is and compare it to his lifestyle and what the queues are like in his shop at the weekend. I would be suspicious of a chip shop that had been running for 3 years and claimed to be below the VAT threshold.

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Replying to March19:
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By ersbed
24th Nov 2015 14:29

Well, it is his third year and the sales figures clearly indicate that the turnover is increasing and he will register once its near the threshold

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By cheekychappy
24th Nov 2015 14:35

With a turnover under the VAT threshold, the profits will be small. Unless the client had savings, or borrowed, I would be wondering there the money came from to refurbish the shop.

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By Tim Vane
24th Nov 2015 14:42

It's certainly not hard to see why HMRC want to take a closer look. I would.

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By ersbed
24th Nov 2015 14:54

As mentioned above profits from business are small however the client has rental income from flat above 

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By rjoconnor81
24th Nov 2015 15:17

Be aware that HMRC will also be pre-armed with information.  They are doing this visit as they think something is up.  I wouldn't be surprised if an inspector has already watched the shop from a distance to see how many people came in over one sitting and calculated what they think the turnover should be.  I agree with others above, a fish and chip shop having a turnover of less than the VAT threshold seems "fishy".  You need to come up with the reasons why in advance, cause they are going to ask it.  30 - 40 portions in one night really seems very low.  Does he only open in the evenings, does he close for half the week, etc. etc.  The fact he gets other income can explain away how he lives, but not why the turnover is so low.  

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Replying to Cheshire:
RLI
By lionofludesch
25th Nov 2015 09:54

Demand

rjoconnor81 wrote:

30 - 40 portions in one night really seems very low.  

At the more realistic £3.30 a portion, that's just under 500 portions a week.   My experience is that these establishments don't open every day.  We're probably looking at 120 portions an opening.

The OP needs to be weighing fish and potatoes and comparing them to purchases, establishing wastage and so on.  How much do the potato peelings weigh ?

Takeaways are a real money-spinner for HMRC with their standard rated sales and zero rated purchases.  Nigh on a 100% rate of GP in purely VAT terms.

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Replying to MJShone:
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By rjoconnor81
25th Nov 2015 15:03

Need to relocate!

lionofludesch wrote:

rjoconnor81 wrote:

30 - 40 portions in one night really seems very low.  

At the more realistic £3.30 a portion, that's just under 500 portions a week.   My experience is that these establishments don't open every day.  We're probably looking at 120 portions an opening.

The OP needs to be weighing fish and potatoes and comparing them to purchases, establishing wastage and so on.  How much do the potato peelings weigh ?

Takeaways are a real money-spinner for HMRC with their standard rated sales and zero rated purchases.  Nigh on a 100% rate of GP in purely VAT terms.

 

I need to move to your part of the country, here in Somerset the fish and chip portions are about £6.50.  Then after you add on the mushy peas and curry sauce  you can be paying about a tenner.  Can get quite expensive for a takeaway meal.  

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By DMGbus
24th Nov 2015 15:32

Price lists now and historic

In my experience a new start up Fish & Chip shop might either:

(a) Never reach the VAT threshold (opened in a poor location) (proprietor health issues / lives a distance away / restricted opening hours)

or

(b) Take a year to get  up to the VAT reg'n limit (a shop that was previously not takeaway food has to build up trade from zero)

To help justify the low takings I think that price lists showing low sale prices can be of assistance.

HMRC are quite likely to have already visited the shop and quite possibly made test purchases.

Hopefully this case has nothing in common with the infamous 2006 VAT case of Caspian Pizza (Walsall)!  (Well worth a read... selling burgers but not recording purchase of buns used for burgers and much more...claiming to close at midnight but actually a high turnover of customers being served in the hours following midnight per HMRC observations and CCTV).

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Replying to Jennifer Adams:
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By trainee3000
26th Nov 2015 10:29

Where can I find

the Caspian Pizza VAT case? 

 

Thanks.

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Replying to nick farrow:
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By DMGbus
26th Nov 2015 11:37

Tolley online resources - Caspian Pizza case

trainee3000 wrote:

the Caspian Pizza VAT case? 

 

Thanks.

2006

V19646: Mojtaba Ashourian trading as Caspian Pizza

NB. Not to be confused with / not connected with any current businesses using a similar trading name.

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By ersbed
24th Nov 2015 16:02

Do I need to tell the inspectors that I will be attending or shall I just go?

 

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By Whinger
24th Nov 2015 17:57

dont tell them

I wouldn't tell the HMRC you were going. It might throw them a little. And if you're put on the spot, don't be afraid to say "I'll need to look that up and get back to you" rather than trying to waffle through it. I had this, she asked something I really didn't know, so i just said "i'll need to get back on that" and she stayed quiet for what seemed an age looking at me, waiting for me to start waffling, but I didn't just stayed quiet too and smiled. 

Be prepared to stand your ground. 

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Replying to NH:
RLI
By lionofludesch
24th Nov 2015 18:06

End

Whinger wrote:

.... "i'll need to get back on that" and she stayed quiet for what seemed an age looking at me, waiting for me to start waffling .....

At that point, I'd probably have said "I take it you've finished."

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By mikeyban
24th Nov 2015 23:09

Transfer of going concern?
I presume the previous owner was not vat registered on transfer?

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Replying to johngroganjga:
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By ersbed
25th Nov 2015 08:27

No the previous owner was not registered

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David Winch
By David Winch
25th Nov 2015 10:41

Tills etc

Have you visited the premises?  Have you visited when they are open?  Have you inspected any till rolls?  Is there more than one till?  Is the till used properly (i.e. all sales properly rung up)?  Do the till roll tails look OK (i.e. no lost zeds, large refunds, etc)?  Do the till rolls tie up with the cash book?

Do let us know how things turn out!

David

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Replying to lionofludesch:
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By ersbed
25th Nov 2015 14:03

Yes David I have been to the shop.

There is only one till, I have checked the Z reports and they look OK.

There will be 2 inspectors coming according to the letter, does that mean more questions? 

I am more concerned about what I could do to help my client and tell him what to expect on the day e.g. they will ask this that

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RLI
By lionofludesch
25th Nov 2015 15:26

Research

http://www.whatprice.co.uk/fish_chips.html

Take your pick.  Suffolk and Sunderland look good.

Some fictitious place called Llaneli (sic) too.

Your travel costs could outweigh the benefits, though.   And the chips could be cold by the time you get home.

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Replying to Paul Crowley:
Glenn Martin
By Glenn Martin
27th Nov 2015 16:46

cannot be £3.30

lionofludesch wrote:

http://www.whatprice.co.uk/fish_chips.html

Take your pick.  Suffolk and Sunderland look good.

Some fictitious place called Llaneli (sic) too.

Your travel costs could outweigh the benefits, though.   And the chips could be cold by the time you get home.

those prices cannot be right are they cost to fish shop as oppose to cost to buy the punter

its £1.50 just for a portion of chips and cod is more expensive than salmon these days.

I just paid £6.25 tonight

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Replying to lewisdolman1996:
RLI
By lionofludesch
27th Nov 2015 21:21

Nope

Glennzy wrote:

those prices cannot be right are they cost to fish shop as oppose to cost to buy the punter

its £1.50 just for a portion of chips and cod is more expensive than salmon these days.

I just paid £6.25 tonight

I suggest flitting.

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paddle steamer
By DJKL
25th Nov 2015 15:27

Whilst not particularly a margin check

Whilst your case does not appear at this stage to be a margin check if it develops into such  remember not to allow  just a single sample month re costs, check costs to weight across the whole year; potato prices vary enormously depending upon time of year which can have a significant impact on implied GP%.

Years ago I managed to discredit an HMRC margin exercise by analysing the whole year rather than the month they had picked; however as the local district then sent the case to Special Compliance re other matters it was a bit of a pyrrhic victory; in hindsight would have been better if we had let sleeping dogs lie.

Must say from earlier comments  I need to move elsewhere in the UK; my local charges £5.60 for a fish supper. good sized haddock (not Cod) but a lot more than the £3-£4 quoted. Their special fish supper- (breaded not battered) is over £6.

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Man of Kent
By Kent accountant
25th Nov 2015 15:59

Reminds me

Avoid cash businesses like the plague...

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Replying to Glennzy:
RLI
By lionofludesch
25th Nov 2015 18:08

Profitable

Kent accountant wrote:

Avoid cash businesses like the plague...

If you're lazy.  There's good money in enquiries and they can be great fun.

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Replying to Wanderer:
Red Leader
By Red Leader
25th Nov 2015 18:24

rate

lionofludesch wrote:

Kent accountant wrote:

Avoid cash businesses like the plague...

If you're lazy.  There's good money in enquiries and they can be great fun.

How much can you recover per hour for the travelling time to and from the client to attend the VAT visit?

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Replying to The Dullard:
RLI
By lionofludesch
26th Nov 2015 10:46

Barrel

Red Leader wrote:

lionofludesch wrote:

Kent accountant wrote:

Avoid cash businesses like the plague...

If you're lazy.  There's good money in enquiries and they can be great fun.

How much can you recover per hour for the travelling time to and from the client to attend the VAT visit?

As much - or as little - as you like.  The client's over a barrel.

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Replying to Wanderer:
Man of Kent
By Kent accountant
25th Nov 2015 20:21

You're welcome to them

lionofludesch wrote:

Kent accountant wrote:

Avoid cash businesses like the plague...

If you're lazy.  There's good money in enquiries and they can be great fun.

Cash business = higher risk = more hassle.

Life really is too short...

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Replying to fawltybasil2575:
RLI
By lionofludesch
26th Nov 2015 09:11

Love them

Kent accountant wrote:

lionofludesch wrote:

Kent accountant wrote:

Avoid cash businesses like the plague...

If you're lazy.  There's good money in enquiries and they can be great fun.

Cash business = higher risk = more hassle.

Life really is too short...

I like an argument.

Especially with some pompous Government nobody.

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By The Innkeeper
26th Nov 2015 08:44

Polystyrene Plates

Check the number of polystyrene dishes that are used / ordered for the takeaway. Quite likely they will look at that and if there is any big discrepancy with takings and number of items used your client could well be in the pooh

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By ersbed
27th Nov 2015 15:58

Just to let you guys know that the visit is over. It took just over an hour, asked client questions about how the business is run, no of employees, opening hours, till etc. they took away records for this year and asked for a copy of previous 3 years records in excel format.

Overall it went well i think

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By Bungo
28th Nov 2015 07:36

Rights
I went to ACCA CPD course last week and there was a session on dealing with HMRC investigations. The speaker (ex HMRC) said no need for the client to be at these meetings, they cannot demand interviews and it is perfectly fine for the agent only to attend. He said that for some clients, this is probably the best thing to do.

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