VAT fraud refers to instances where a business doesn’t charge VAT when they should, or when they charge VAT but don’t pay the money to HMRC. A company might commit VAT fraud by:
- asking you to pay in cash to avoid paying VAT on some work
- asking you to make the payment to someone other than the business
- not being registered for VAT when their turnover exceeds the threshold
- falsely claiming to have applied for a VAT number
- using a VAT number belonging to somebody else.
VAT fraud is a form of tax evasion and taken extremely seriously by HMRC, whether accidental or not.
Inspections and Visits
You may get a visit from a VAT officer to inspect your VAT records at any time. During the visit, the VAT inspector will check your VAT records to ensure that you are paying or reclaiming the correct amount. You must keep detailed business records to supply accurate information in your tax returns to avoid any interest or penalties.
Usually, HMRC will write to your business and ask you to phone them back to discuss your records. They’ll ask you some questions about your files and business activities to determine whether you’re keeping sufficient documentation to meet your legal obligations. This call usually takes no longer than 15 minutes. Using the information you provide, the HMRC officer will assess whether you’re likely to be able to submit an accurate tax return from the records you’re keeping and either:
- inform you if no further action is required, which they will confirm in writing
- advise you on the call that you need additional support with your tax return, and provide a helpful link
- decide you’re at risk of keeping inadequate records and inform you that you need an in-person visit
- pass your details on to the visiting booking team, who will contact you with a suitable date and time for the visit, which they will confirm in writing after the call.
HMRC may also visit without an appointment at any time, however they will usually give you seven days’ notice of a visit by letter. When arranging an inspection, they will let you know which documents and records they want to see, the expected duration of the visit and whether or not they wish to inspect your premises. For smaller businesses, visits usually take several hours, but for a more complex or larger business, it can last several days. You are permitted to request that they delay the inspection. During the visit, the VAT officer will:
- discuss various aspects of the business with you
- give you an indication of how long the inspection will take
- examine the records you keep of the business
- advise you of any overpayments or underpayments.
After an inspection, HMRC will write to you with details of the visit, including anything you need to improve in the way of recording your VAT, any corrections you may need to make to your account and any penalties you may be obliged to pay. If the officer finds an error, you have the right to request a review of their decision by a different officer who has no previous involvement. If you’re still not happy with the outcome, you can appeal a penalty to an independent tribunal, so long as you do it within 30 days of the visit.
Have I exceeded the threshold?
There are two factors to consider when working out whether you have exceeded the VAT registration threshold. The first is whether your taxable turnover exceeds the limit, and the second is determining at what point the VAT registration threshold was exceeded.
- Calculating taxable turnover – We now know that all businesses who earn over the threshold have an obligation to apply for VAT registration in the UK. But what does your taxable turnover account for? A business’ VAT taxable turnover includes the value of any goods or services which they supply within the UK, unless they are exempt from VAT. Companies must also include any zero-rated supplies. When calculating taxable turnover, you should not include the sale of any capital assets.
- Determining the date you exceed the VAT threshold – The crucial detail relating to the taxable turnover limit is that the 12-month period applies to any rolling 12-month period, and not necessarily to your accounting period, the tax year or the calendar year. Similarly, if you expect your VAT taxable turnover to surpass the VAT threshold in the next 30 days, you are also obliged to register.
