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VAT Inspection

How far back can HMRC go?

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Does anyone know, is there a standard length of time HMRC can go back when carrying out a VAT inspection.   I have been contacted by a prospective client (have not decided whether I want him yet!) who has not paid VAT for a number of years.   He has now got his returns up to date after receiving a warning, but has not received any demands for payment, so he is expecting an inspection although, in the current climate, he has no idea when.   As the majority of his supplies are zero-rated, he does not think he owes a substantial amount.

He is under the impression that they can only go back 4 years, but as accounts have to be kept for 7 years I would have thought this would be more likely.

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By Les Howard
24th Nov 2020 11:18

The normal rule is four years. HMRC can only go back further if there is deliberate evasion. But, where there has been persistent non-compliance there is some evidence that they do consider the evasion option.
If he has brought matters up to date, including settling any back tax, I would be surprised if HMRC were to pursue matters.

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Jason Croke
By Jason Croke
24th Nov 2020 11:26

4 years is the default period that HMRC can look back on. However, if HMRC believe deliberate fraud has taken place and that there is a loss to the exchequer, they can go back 20 years.

If the majority of supplies a zero rated and the business is failing to file VAT returns, then they could write to HMRC and ask for exemption from registration on the basis they only make zero rated sales and don't want to reclaim input tax and then that does away with the VAT return altogether.

You state the business mostly makes zero rated but then go onto say that no demands for payment have been received, so presumably the business does owe VAT, even after input tax reclaim?

Are you sure the business has filed their returns? if not filed for years then the business will have been flagged as a missing trader and HMRC block access to the online VAT return system, so the business has to call HMRC to reactivate it and only then can they file the returns. if this is what has happened, HMRC do not list all the outstanding returns per quarter, they will merge all outstanding returns into one, very long period, so the filing deadline for that one long-period return may not be due as yet and so not actually field as yet.

HMRC will do an inspection, it will be done over the phone/email, requesting copies of bank statements and invoices, much like a physical inspection but done remotely.

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By bernard michael
25th Nov 2020 09:49

"he does not think he owes a substantial amount" Surely if he's done the returns he knows how much he owes. Pay that and possibly HMRC will not bother him

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