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Vat Inspection

Vat Inspection

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We have a Ltd Co client, who runs the business from his flat. First VAT return showed a repayment due (about £5K), mainly because of website costs.

HMRC decided they want to do a VAT inspection, wrote directly to him and then telephoned him to try and arrange. He explained that business is run from his flat, Inspector said he will have to go the HMRC office instead. Client says that accountant does the VAT and shouldn't they be involved, HMRC Officer says no.

We contact HMRC officer to try and sort out - very uppity and starts talking about client having to ring him before making any more supplies, insisting on due diligence checks, etc. Eventually accepts that he is wrong to do so as client not in any type of business where MTIC could apply. Asks us to send him some documentation to be looking at and to suggest meeting date. We send info by email and suggest a date, at our offices. HMRC office refuses as cost to HMRC is excessive (they are around 20 miles away) as two officers for two days. I point out that only 3 months trading, one half full lever arch file of records should not need 2 days. I state that cost to taxpayer of our travelling to HMRC office will be more than their 'cost' of coming to us. HMRC Officer says that taxpayer has the choice of paying us to go or not so not something he should take into account. I quote HMRC guidance both from compliance handbook and factsheets which both refer to it being possible to have the meeting at the agent premises (and in fact we have always held them here - over 70 years there has been a fair few! - not that I am 70 cough cough).

Next we hear is that a senior officer has written direct to client, (says no 64-8 held - although one sent), says that although they 'may' hold inspections at agents, they are not obliged to, further insists on taxpayer travelling to HMRC Office (I must add, they are closer to the Office than we are).

I therefore submit further 64-8 and ask for particular reasoning as to why the meeting cannot be held at our premises, also expressing my concern that we are going 'back and forth' over this, that it is a perfectly reasonable request, etc.

Officer further ignores 64-8 and writes direct to taxpayer stating that he is using formal powers, Para 10 Sch 36, FA2008, to insist that the inspection take place at the business premises (i.e. the flat).

So, I have never seen this before and am unsure what we should do next - any ideas please gratefully received! Should we:

1. Go along with the formal request? (Client really upset about having them in his flat - he flat shares and doesn't want the intrusion). If so, considering we have all the vat records for the period in question, would we be legally obliged to courier them?

2. Refuse, stand our ground with our reasonings and wait and see what HMRC do?

3. Make a formal complaint? The first Inspector's behaviour really was quite bad, and the mistakes he made over the MTIC was pretty shoddy. And why would HMRC not follow their guidance?

So sorry this is long-winded - thank you for all and any advice :)

Replies (18)

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Stepurhan
By stepurhan
14th May 2014 15:26

Complain regardless

I think the behaviour of both inspectors is indefensible, so I would complain about it regardless. Mention the incorrect use of legislation and ignoring a 64-8 for starters.

As for the question itself. Extensive (and I really mean that) previous thread on the subject.

But in this case the business premises are also not only the home of your client, but of someone else. There is presumably no way of granting them access to the room that is considered business premises without accessing other simply private parts. I would state you clearly object to the site visit on this basis alone.

Or you could simply refuse them access to the private parts and insist they scale the outside of the block of flats to the window of the "office". They only have power to inspect the business premises after all. ;-)

Dependent on what the client actually does, you could have a good argument that a site visit also has no value for them. The value of a site visit for the inspector is from being able to see the business in operation. By the sounds of it, there would be no operation for them to be able to see.

 

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Replying to bettybobbymeggie:
By northernmonkey
14th May 2014 16:01

Thanks Stepurhan - that was an extensive and interesting read!

The flat is literally openplan living area/kitchen and two bedrooms. Client uses his laptop in the living areas so business and private! 

There is definitely no value in attending the flat as we have all the accounting records and the only asset held there is the laptop. Business is buying and selling wine, held in bonded warehouses, all of this explained to the first inspector.

I honestly think they are just being awkward - but if I continue to thwart this, client's repayment further delayed.

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By The Innkeeper
14th May 2014 15:39

Firstly

They have alarm bells ringing as a substantial refund is showing on a first return They may not be worried about MITC fraud but rather first return fraud. I don't know if they have changed the parameters but at one stage a first return showing a refund of more than £100 was looked at closely. I assume (always dangerous) that your client is in an industry where claims are not common.

You should point out to your client that the powers do not al;low the inspector to enter or inspect any part of the premises that is used solely as a dwelling. Therefore if your client merely operates from ,say, the dining room they cannot enter the bedrooms.I wonder if he could stop them entering the loo - just an aside.

Many years ago a client had a visit at his substantial home. The office could mot see how he was supporting himself on his modest salary from the company - all well was well when the client showed him a very substantial dividend voucher from a well known quoted company where he had previously been a main board director.

I think on balance your only course of action is to send a formal written complaint addressed to the Complaints Manager

 

Thanks (2)
By northernmonkey
14th May 2014 16:03

Thanks Innkeeper - they have confirmed that the sole reason for the visit is because of that first return, with repayment due. Mainly to check they are actually 'in business'. We have provided samples of sales and purchase invoices showing this.

I really want to make a complaint but may have to convince the client!

 

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By The Innkeeper
14th May 2014 16:39

For future referennce

If we have a return that abnormally shows a refund we always write on submission of the return explaining the circumstances and include copy back up invoices etc.. So far we have been lucky and not had any clients have an inspection merely because of an unusual refund .Given that you mentioned that your client buys and sells wine I wonder if they are concerned about Duty issues?

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Replying to bernard michael:
By northernmonkey
14th May 2014 16:54

Innkeeper

On the first call, they did state that it was a business 'with the potential for problems' and in fact when I spoke to the Officer that was the reasoning why he said they should be carrying out due diligence. All of the wine is bought from collections in the UK, and the majority is bonded. We even spoke to the Wine and Spirit Trade Association and they had never heard of any wine purchaser being expected to do due diligence on the seller - this was the first 'error' of the first officer.

It is however a reason we are slightly cautious - in case there is more to it than meets the eye - but the first inspector was so hopeless, my gut feeling tells me this is HMRC trying to regain the high ground after their first errors.

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By ds
19th May 2014 13:22

elf n' safety

Is there a good reason to discourage a home inspection on the grounds that as no public liability insurance is required or held as it is a home and therefore the inspectors would not be covered if they had an accident (no malice intended to Her Majesty's Officers) such as tripping over a rug?

If they say they are covered by their own insurance policy, demand copies in advance and a written undertaking that no claim would be made if they suffered personal injury or damage. I remember a case of a supermarket home delivery operative claiming against a home-owner after slipping on a lose garden paving stone and apparently being injured. It seemed the supermarket in question didn't cover their employees when not on their own premises.

In the case in question it would seem odd that the inspectors refuse to attend a meeting at the accountants office, maybe they are digging for something else?

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By tinyme77
19th May 2014 13:58

One inspector told me that I would be surprised by the number of companies that don't actually trade out of the office address that they give. It is just a front. They probably want to meet at the address to prove that it is a real business.

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By James26
19th May 2014 16:10

Technology...

... given they've only just discovered email I wonder how long until Google maps/earth goes mainstreem?

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By Consultants4VAT
19th May 2014 16:10

AAM

I have so far not needed to use the AAM, but others may have some experience.

http://www.hmrc.gov.uk/agents/aam.htm

 

Thanks (1)
By northernmonkey
19th May 2014 16:27

Hmm, I hadn't thought about the AAM - and have never had to use it previously!

Have any other members used this? And do they think it would be suitable in my position?

Thanks

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By trecar
19th May 2014 16:46

Bonded warehouse

Bit confused as you state that all of the wine is held in bonded warehouse and then later you state that the majority of the wine is bonded. In my experience it is unusual to hold wine no longer bonded within the confines of the bonded warehouse as of course once the duty is paid then the wine can be removed for onward transmission.

From what I have read so far I must admit to puzzlement at the HMRC attitude.  Wine held in bond cannot be moved and ownership is a matter of registration through paperwork (the invoices etc). There is no question of the wine going missing and validation of existence can take place through the duty records. It sounds to me as though the Inspector involved lacks certain skills and to make up for it is being contrary. I would insist that as the records are held at the accountants offices that the examination takes place there. It might be worth pointing out that the place of residence is most probably primarily a convenience address and that the actual work can be performed anywhere, hence the maintenance of financial records at the accountants.

Good luck!

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By Jennie Gillam
20th May 2014 08:27

Agree they are being awkward. but...

If the return really is that simple, why not get the client to take the records and half-lever-arch file to the HMRC offices and sit there with them while they go through it.  You really don't NEED to attend if it's that straightforward, and if your firm has been doing the book-keeping presumably you have good records with full details to back the return figures up?

Surely that will be the least time-consuming way of dealing with it?  Yes, you can continue to argue with them that it should be at your offices and not at the client's home, but in the long run all it is doing is taking up your time, which must be costing your client at the end of the day, unless you aren't billing for this correspondence?

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Replying to K81:
By northernmonkey
20th May 2014 08:52

Jennie

Jennie Gillam wrote:

If the return really is that simple, why not get the client to take the records and half-lever-arch file to the HMRC offices and sit there with them while they go through it.  You really don't NEED to attend if it's that straightforward, and if your firm has been doing the book-keeping presumably you have good records with full details to back the return figures up?

Surely that will be the least time-consuming way of dealing with it?  Yes, you can continue to argue with them that it should be at your offices and not at the client's home, but in the long run all it is doing is taking up your time, which must be costing your client at the end of the day, unless you aren't billing for this correspondence?

Thanks Jennie. The client is very young and simply doesn't want to deal with this himself. He and the inspector got off to a bad start in the first telephone conversation (Inspector inferred that taxpayer not doing things correctly and that they see a lot of fraud in this type of business, client rather upset about that, it got a bit heated from what I can gather) and he is insistent that we 'hold his hand'. No, we won't charge for the extra correspondence as not fair on the client. Although if we have to carry out the extra travel, I have no choice.

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Replying to Tax Dragon:
By JCresswellTax
20th May 2014 09:15

You sound like Jack Bauer

northernmonkey wrote:

Jennie Gillam wrote:

If the return really is that simple, why not get the client to take the records and half-lever-arch file to the HMRC offices and sit there with them while they go through it.  You really don't NEED to attend if it's that straightforward, and if your firm has been doing the book-keeping presumably you have good records with full details to back the return figures up?

Surely that will be the least time-consuming way of dealing with it?  Yes, you can continue to argue with them that it should be at your offices and not at the client's home, but in the long run all it is doing is taking up your time, which must be costing your client at the end of the day, unless you aren't billing for this correspondence?

Thanks Jennie. The client is very young and simply doesn't want to deal with this himself. He and the inspector got off to a bad start in the first telephone conversation (Inspector inferred that taxpayer not doing things correctly and that they see a lot of fraud in this type of business, client rather upset about that, it got a bit heated from what I can gather) and he is insistent that we 'hold his hand'. No, we won't charge for the extra correspondence as not fair on the client. Although if we have to carry out the extra travel, I have no choice.

You always have a choice ;)

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Replying to LangdonHamblin:
By northernmonkey
20th May 2014 14:24

Update!

Okay so HMRC Inspector rang client, client says he doesn't want it in flat, for obvious reasons, HMRC Inspector says it must be at HMRC Offices then! Client fed up of waiting for rebate so has agreed and knows our fees will be higher than if it were at our office.

So it's clear to me that either, a) HMRC were hoping that by forcing it to be at their offices we may not attend or b) they just want to try and have some upper hand in proceedings.

I've got a good mind to ask them face to face what the problem is and am still trying to convince client to allow us to make complaint.

Aargh!

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By Malcolm McFarlin
20th May 2014 15:46

Cover fraud

Northernmonkey

I think you need to be aware that HMRC are undertaking extensive due diligence checks on all under bond trading companies since they have huge concerns with respect to the loss of excise duty. From reading your e-mail it would appear that if your client is trading mainly under-bond only then most of his supplies are outside the scope of VAT.

HMRC do have concerns about the supply chain since a company can unwittingly be involved in a circular or cover fraud. For instance wine is sent from a French bond to a UK customer's account in the bonded warehouse who sells onto another UK customer. It is then possible for the wine to be re-exported to France going through a series of other under-bond traders. Meanwhile duplicate loads are then imported into the UK using the same paperwork [E-AAD] as the one held by your client. Those goods are effectively smuggled into the UK and are in free circulation and for sale without payment of excise duty. The current UK loss of excise duty is £1.2 billion per year which is why HMRC want to speak to your client and will expect him to undertake due diligence checks on both his suppliers and customers.  HMRC suspect that many of the trades have no commercial rationale to them.

My firm specialises with businesses who trade in the excise industry and there are many variations of a fraud which an unwitting underbond trader can be caught up in. I would be happy to speak to you if you want some further advice or have a look at our website for further information.

Malcolm McFarlin

www.mandrtaxadvisers.com

Thanks (2)
Replying to Tax Dragon:
By northernmonkey
21st May 2014 14:11

Thanks Malcolm - that's good to know. They did mention commercial rationale (especially as they had a business angel pump a large amount of money in at the start) so this could explain a lot. (This is our first 'wine' client).

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