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Practice Tip - VAT

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25th Jul 2005
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Recent conversations on AccountingWEB about VAT inspections have highlighted just how important, and neglected, VAT is. What other tax works in turnover? For what other tax would someone say (as one of the recent commentators did) that the visiting Inspector leaves you with a list of adjustments you have to pay and you basically agree and settle up? In combination these two things alone suggest that the scope for error on VAT is large, and that it does happen. In fact, I wouldn't mind betting that for most practices if they kept a log of these things the biggest additional tax payments due by clients after any form of tax inspection would always be of VAT.

Despite this when I was actively involved in supplying CPE courses to accountants (as I was for more than a decade) I had a continual problem persuading my colleagues of the importance of running VAT courses, and then of persuading people to attend. Partners thought that VAT was an issue for book-keeping juniors. Commercial FDs thought it was a matter of 17.5% on everything and what's the problem?

Both of course were wrong. VAT is as complex. And it can go horribly wrong. Common errors include failing to charge it on disbursements, getting exports (especially of services) wrong, zero rating when you shouldn't (for example, to charities who often claim they have a right to such treatment when it's not true) and, of course, claiming back VAT which is inappropriate whether in error or not (and most firms will have seen people try to claim it on the most outlandish of private expenditure).

I therefore strongly suggest three things. First of all, if you're going to delegate VAT to junior staff spend serious money training them on what it is all about, and then in keeping their knowledge up to date. Secondly, set limits on what you're responsible for if you prepare VAT returns for clients, especially in engagement letters (e.g. that you are not responsible for checking all sales invoices have appropriate VAT charged on them, or that all claims for VAT are really for business purposes if the invoice has been sent to you for processing, plus de minimis limits below which you are not required to make claims to reduce the fag of extracting VAT from all tiny petty cash claims). Finally, make this an issue of client education. In no other area do you have greater need for materials to give to clients to tell them what VAT is, when they must register, how they must charge it, what they must charge it on, and what they may reclaim. If you have these and give them to clients you have a defence if they make a mistake. If you haven't you're at risk. Which makes it a pretty simple choice as far as I can see.

Richard Murphy
AccountingWEB contributing editor Richard Murphy is a sole practitioner chartered accountant but was previously senior partner of a firm for 11 years. He has also been chairman, chief executive or finance director of 10 SMEs. A collection of previous articles by Richard on practice management themes is available in Practice Management Zone

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