HMRC's Treatment of Taxpayers
Most of us remember sniggering at the adverts where HM Revenue & Customs ('HMRC') declared that "tax doesn't have to be taxing". In reality, taxes can be incredibly complex and none more than Value Added Tax ('VAT'). In the current climate, HMRC are under pressure to increase VAT receipts and improve compliance whilst facing cuts in staff and streamlining of services.
HMRC have recently moved awayt from the traditional 'periodic' system for compliance visits to a vehaviour/risk based system. This means that businesses which are typically deemed to be more at risk of VAT loss (cash businesses, constructin, those with compliated VAT affairs such as partly exempt businesses and charities) are now firmly on HMRC's radar, and are more likely to have the pleasure of compliance visits more frequently than other businesses of the same size and scale. THis is also true of businesses which have a poor compliance with submitting returns and making payment by the due date.
Checking Repayment Returns
Furthermore, HMRC are increasing the scale of ‘credibility’ checks into repayment returns. Whilst in some cases these can be ‘desk cleared’ (i.e. the officer can review the purchase and sales invoices without needing to visit) there is an overall sense of additional scrutiny where businesses have VAT on purchases which exceed VAT due on sales. Whilst all businesses understand that HMRC must ensure that the right amount of tax is being paid at the right time, these visits are often seen as a fishing exercise to uncover errors. The delay in releasing refunds while HMRC carry out routine checks, and conclude investigations is a frustration.
Feedback from clients and our experience from recent VAT compliance visits is that VAT Officers will often raise assessments first and ask questions later, especially in instances where the VAT liability of a supply is not clear cut. The nature of VAT is that it can be highly subjective, and in the current economic climate, HMRC appear to be increasingly aggressive towards taxpayers who have made genuine mistakes or interpreted the law in a different way.
In some instances, clients have been left with no other option but to complain through official channels for maladministration.
What can you do to avoid risk?
Unfortunately, VAT is a complex tax, so mistakes are common and can be costly. In order to protect your business from the wrath of HMRC, we recommend that you:
- Ensure that your VAT records are up-to-date and are organised and orderly;
- Consider the VAT liability of a supply, and clearly document your research - keeping copies of HMRC guidance and materials you have used in order to come to a reasoned conclusion;
- Challenge HMRC decisions which you consider are incorrect – whether it be a default surcharge, or HMRC’s opinion on the VAT liability of a new service line – statistics show that 50% of VAT assessments are overturned on appeal;
- Seek advice – VAT can be complicated and it’s always beneficial to get a second opinion. Mistakes can be costly, so it is always more cost effective to seek advice at the outset, rather than to unravel the VAT affairs at a later date;
- Consider fee protection insurance – so the financial cost of any enquiry by HMRC is taken care of, and to free up time for what you do best – running the business.
For most businesses, VAT is seen as a necessary evil. But with advice and assistance from Mitchell Charlesworth’s dedicated VAT team we can ensure the hassle is taken out of dealing with HMRC.