Can accountants delay VAT inspection visits?
An accountant would prefer to have a VAT inspection delayed by three months due to their busy workload. Is it possible to put off HMRC to a much later date? Neil Warren finds out.
Accountants are always busy in the run-up to the self assessment deadline, and this includes the pre-Christmas period. If an HMRC officer makes contact with an accountant in late October and asks to review a client’s VAT records for the last four years, is it reasonable to ask the officer to delay their visit until after 31 January?
In a particular case I was asked about, the VAT records are completed and kept by the accountant, so the HMRC officer needs to attend the accountant’s office.
The HMRC officer refused to delay her visit until February 2020 but did agree to wait until December, as long as the visit was carried out before Christmas. I think this was very fair and she has now agreed on a date with the accountant in early December.
Don’t forget that if HMRC finds errors on a VAT visit where careless behaviour is involved and tax has been underpaid, a potential penalty is reduced according to the level of co-operation and assistance given to the officer. A timely inspection rather than lengthy delay will probably earn a lot of brownie points on this issue.
How much legislative power does HMRC have to insist on a prompt visit? Could the HMRC officer insist on coming next week, or even tomorrow? What records can HMRC check when the officer attends?
The legislation governing HMRC’s powers is contained in FA 2008, Sch 36 and here is my interpretation on the three important issues of ‘where’, ‘when’ and ‘what’.
The law gives HMRC officers the power to attend and inspect business premises, as well as check records relevant to tax returns submitted by the business. HMRC’s policy note CH25140 helpfully confirms the meaning of ‘inspect’: “inspect means that you may look at what you can see but you may not look for something you cannot see.”
The HMRC officer can check specified records, ie those documents that allow the submitted VAT returns to be properly reviewed. There has always been a bit of controversy about what supplementary records can be checked, eg management accounts. As VAT is a tax on the supply of goods and services, it is normally easy for officers to justify seeing most available documents to check that output and input tax figures are both correct.
It is expected that HMRC officers and taxpayers will be able to agree on a mutually convenient date and time for records to be checked.
Business owners should be aware that FA 2008, Sch 36, para 10(1) gives an HMRC officer the right to ‘enter a person’s business premises and inspect … the premises, business assets that are on the premises, and business documents that are on the premises if the inspection is reasonably required for the purpose of checking that person’s tax position.’
This power is not relevant if a property is used solely as a dwelling (FA 2008, Sch 36, para 10(2)).
I was also asked whether HMRC has the power to interview staff employed by a business ie, not a director or senior manager. For example, would it be reasonable for an officer to question the till operator at a bakery about how she decides which sales are zero-rated (cold takeaway food etc) and how she cashes up at the end of the day?
The answer here I feel would be ‘yes’ because the employee’s role is relevant to the accounts and VAT returns of the business. But there would be no right (or need) for an HMRC officer to speak to the office cleaner.
The final word goes to HMRC with a direct quote from its guidance on compliance checks: “HMRC believes that most of their customers are honest and aim to treat them all with respect.”