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ANY ANSWERS ANSWERED: VAT inspections: What does "reasonably required" mean in relation to an inspector's request? By Nichola Ro

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1st Jun 2006
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There are many instances in the VAT and taxes acts where an inspector may 'reasonably require' information in respect of a taxpayer and his affairs. Indeed, it is part and parcel of tax compliance.

An Any Answers query this week asked "Am I being unreasonable?" Clare Hunt posted a query concerning a client company which had a clean bill of health in respect of previous VAT inspections, but is undergoing another inspection for later periods. The VAT inspector has 'routinely' requested that photocopies of hundreds of random purchase & sales invoices during a three year VAT inspection period be provided for her purposes. This task would ...take days as the company concerned has three different arms, says Clare.

Responding, John Savage, an ex-VAT officer, said that one must produce such documents to the inspector as he or she may reasonably require. So unless there is some reason why the taxpayer is unable to produce the original documents, then he would feel that the inspector's request is not 'unreasonable'.

He feels it would be difficult to argue that the inspector herself finds the relevant documents requested. He suggests that it is client's responsibility to locate and produce the documents asked for. He also recommends that Carol should resist having to photocopy them.

All respondents to the query thought the request was odd, but Graham said that he disagreed with John and did not feel that the client has a responsibility to locate and produce the documents asked for. Who is right? Not such a stupid question, after all a VAT inspection requires examination of the business's records, and one expects an inspector to do the inspecting. But, in the case of a large company with many, many files, that skill of 'record finding' is probably best left to the person who does the day to day filing.

Advice from HMRC
I had little joy with the National Advice line, the first call directed me to some VAT leaflets, which I could not find on-line. Waiting in the queue, I tracked down the leaflets I wanted (they are not listed by number, and so you have to trawl though lists of headings which confusingly are not the same as the titles of the guides).

The VAT Guide to keeping records 700/21 says 'From time to time we will come and see you at your principal place of business. We will give you any help you may need and inspect your business records. You must have your records easily available when we visit.

Notice 700/26 Visits by VAT officers says that you can expect VAT officers to examine your business records, adding 'We will aim to carry out our visit as quickly as we can and be as little burden to you and your staff as possible.'

Notice 989 Visits by Customs and Excise Officers says 'We can examine your business records, methods and premises. And we can give you guidance. We aim to carry out our visits as quickly and efficiently as possible. You can help by providing the relevant records and help us understand them.'

Reading between the lines
I glean that speed and efficiency are definitely targets, and to this end, it is very helpful if your staff can assist by providing the relevant records, although HMRC do not want to over burden.
It therefore seems pretty reasonable that the taxpayer should assist if they are willing, able or requested, particularly if an inspector is having difficulties locating the documents required.

But photocopies?
Whether a photocopy, rather than an 'original' is reasonably required or not in a VAT inspection is an interesting question, given that most VAT inspectors insist in seeing first hand the original and not a copy. If the boot were on the other foot, so to speak, and only photocopies had been provided, I feel that then it would be perfectly reasonable for an inspector to request originals. Copies could have been tampered with, and verification of originals is definitely a reasonable requirement in certain circumstances.

There is no requirement to produce photocopies of records according to the VAT guides or VAT Act for that matter. There is just a requirement to produce the actual records, and assist, and latter is optional according to the guides. Where an inspector cannot find a document or any other information he will always request it afterwards in any case ' and then he may accept a photocopy, but sometimes an original is required.

If all else fails Carol can go to the VAT Tribunal, I honestly think that the Inspector will back down long before the event.

Nichola Ross Martin

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