Freelancers' Questions: What to expect from a VAT inspection?

Freelancer’s Question: What should a freelance consultant who owns their own small company expect during a VAT inspection by HM Revenue & Customs? I have an accountant but he's not being very forthcoming. Please advise.

Expert’s Answer: During an on-site VAT inspection, businesses should expect the tax official to inspect the premises – not a great issue for most freelancers, although you may ask that the visit be carried out at your accountant’s premises.

The tax officer will want to make a detailed review of VAT records. This could include for example:

  • A review of annual accounts
  • Bank statement – for reconciliation
  • Evidence to support VAT recovery claims
  • Evidence to support sales with no VAT, such as documents supporting where the work was done or where the customer belongs
  • Evidence of export or dispatch of goods from the UK
  • Fuel scale charges for cars and other private use charges
  • Accuracy of EC Sales Lists and Intrastat declarations (where applicable)
  • Any other documents which support the VAT treatment applied, such as contracts and / or correspondence.

It is worth bearing in mind that, given the beefed-up penalty regime, it is better to notify HMRC of any errors or uncertainties as soon as these become apparent in order that corrective action can be taken.

It is now nearly six years since HM Customs and Excise and the Inland Revenue merged to become HMRC, and whilst the two legacy Departments are not fully entwined there is a single song-sheet and common aims. For example, the Department has, for many years, been able to use information submitted under the direct tax regime to identify businesses trading above the VAT registration threshold which appear not to be registered for VAT. This is then followed up with a letter asking for an explanation, or a belated notification to register.

VAT is a complex business, and businesses are encouraged to take professional advice, from accountants or specialist VAT advisors in order to understand the consequence of any errors or oversights.

The expert was Karen Mulcahy, a consultant at the VAT Consultancy


8th November 2011

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