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My Finance Drive bookkeeping team have seen a recent increase in the number of enquiries from HMRC, especially on VAT Returns. One HMRC agent told us that extra staff had been brought in from other departments to help them complete all of these reviews. But what is a VAT enquiry? What does it mean for your business? And what has prompted this increase?
What is a VAT enquiry?
A VAT enquiry often starts with a phone call to your business. An agent from HMRC will call the business and explain that they will be looking at the VAT return submitted for your business and the detail in the VAT return.
Ideally, they would like to communicate with you by email, but they need your permission to do so. They will ask for an email address and will send you a letter explaining what you need to send them. This is basically a copy and paste job; you tell them that you are happy to talk by email and that’s it.
At this point, you should contact us to let us know that HMRC will be looking at your VAT Return. We speak to HMRC officers on a nearly weekly basis and our experience can offer you reassurance and help with your enquiry.
Next, the agent will often ask for a transaction list to support the figures on your VAT Return and copies of your bank statements for the period. Hopefully, these will be easy to get hold of and send over by email.
We like to be prepared for VAT enquiries. So, for our Finance Drive remote bookkeeping clients we always keep a copy of VAT Return reports on file and whenever a VAT Return is a repayment, we make a folder containing copies of the invoices for the six largest purchases. We will also include some smaller ones if we know they are the kind of invoices HMRC like to see, for example vehicle purchases or invoices from connected businesses.
HMRC seem to choose a few more invoices at random as well, but it is always good to know you have the biggest ones safely stored and ready to send.
I have no idea how many enquiries an HMRC officer must do in a day but it must be loads. Most of those will take a long time, as the taxpayers find and scan copies of their invoices as well as running their business.
One agent told us that they hate having to deal with accountants. Apparently, accountants normally make the whole process take even longer.
That’s not the case with us. We make it our mission to be ready with the information we know they will request and to reply quickly to the agents. This shows them that we want to help them complete their job efficiently and seems to help get our clients through VAT enquiries quickly.
Our attitude towards VAT enquiries is generally, ‘bring it on!’. One of the differences between our outsourced bookkeeping service and having a bookkeeper in-house is that our team of skilled accountants review every tax return before they are submitted to HMRC. We know that it can be hard to feel confident when you’re maintaining those books/accounts yourself. We work together with our clients to ensure that our work is high quality and that we are ready to proudly stand by the returns that we have submitted.
Why the increase?
The increase in VAT enquiries may be explained by the fact that many more businesses have been making VAT Reclaims. A lot of taxpayers have lower income than usual due to coronavirus, some are only charging 5% VAT due to the Winter Economy Plan and lots have been spending Bounce Back Loans, which means that the VAT on their purchases is higher than the VAT on their income. Maybe a combination of these factors mean that their VAT is lower. Whatever the reason, it’s important to be prepared when questions are asked and enquiries are requested.
If you want our help preparing for an HMRC VAT review, get in touch with us. Our Finance Drive team can help you prepare and save you time on your bookkeeping too.