Tax Tip of the Month
February 2009
When not to be there
It’s always a good idea to know when to speak and when to be silent. And it can be just as good an idea to know when to be present as when to be absent.
A situation in the latter category is definitely the VAT inspection. Anyone who is involved in any way in a VATable business looks on these as unavoidable evils, like a visit to the dentist or washing behind your ears. But they don’t have to be as bad as some people think.
Assuming that the reader is either one of those who run a business or who have influence over someone who does, the good news is that, not only do you not have to be present at the VAT inspection and talk to the VAT officer but also it is our strongly held view that you ought not to be there!
It’s pretty obvious, to us, that the purpose of VAT inspections is not to “help you get your VAT affairs right”, as the mealy mouthed HMRC guidance would have you believe, but to try to raise extra revenue by finding mistakes. At least, that seems to be the outlook of most VAT, inspectors even if it isn’t made explicit.
So any interview you allow yourself to be talked into having with the visiting VAT officer is going to be held with that purpose in mind. He is going to look to establish points which are in his favour, of which he understands the technical background, and you (probably) don’t.
Only the other day, we came across an instance of carefully angled questioning by a VAT inspector that enabled him to go back to the office and write a letter disallowing almost all the input VAT the company had claimed. In fact, the background to his questions was by no means as clear cut as the reported answers of the directors would imply, but the company’s position was, needless to say, enormously weakened, as far as any future argument against the inspector’s conclusions is concerned.
The important thing to remember is that the VAT inspector has no legal right to interview you, or indeed anyone else. His legal entitlement is to inspect the books and records at the principal place of business. So you’re quite within your rights in refusing to have an interview, despite the officer’s insistence.
And don’t run away with the idea that, by cooperating in what is an illegal demand you are somehow improving your chances of being treated well by HMRC. We think it’s more likely to be the other way around: if you show that you are willing to roll over for them, they will think you are a soft touch who doesn’t know his rights and is therefore more likely to cave in when they come up with some VAT demand or other. In fact, you could well be baring your back for the lash rather than making things better.
