HMRC is stepping up VAT compliance activity
- Jul 20
- 2 min read
Updated: Jul 21
More UK businesses are to be selected for VAT compliance checks over the next two years.
HMRC is issuing letters to an increasing number of businesses telling them it's likely they will be reviewed.
Accountants believe that companies are likely to be reviewed after five years of no reviews by the tax authorities.
Experts say businesses need to be aware that they can be reviewed and should take the necessary steps to avoid fines and disruption.
Within HMRC's new initiative, Making Tax Digital (MTD), businesses are required to keep digital VAT records and submit returns through compatible software.
Although MTD has further complicated VAT, the industry also points to other key factors which are making life tricky for business, including Brexit, VAT reduced rates in certain sectors and coming legislative changes.
When it comes to a VAT compliance check, there are five key areas which draw focus.
Firstly, looking to see if VAT records are complete, accurate and match financial accounts. What triggers most concern is weak controls.
Secondly, businesses must correctly account for any private or non-business use and calculations must not only be clear, but also supported by evidence.
Thirdly, for those business which make both taxable and exempt supplies, input VAT must be properly apportioned. In this area, errors in these calculations are common and can result in incorrect VAT claims.
Fourthly, following Brexit, HMRC will review the treatment of overseas services, place of supply and establishment issues. It requires that all imports and exports must be supported by appropriate documentation.
And finally, businesses have to ensure supplies are correctly classified and misclassification is a frequent issue in VAT compliance checks.
Despite the threat of a VAT compliance check, accountants do see it as an opportunity for companies to undergo some good housekeeping, and ensure they are following best practice and keeping to the rules.
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