Avoiding VAT Inspections

What does the VAT man do with all your returns? Simple. He enters all the numbers into his computer in the hope that it will tell him you are due a visit. Is there a legitimate way to beat the black box next time?

Head above the parapet?

Nobody wants the VAT man to call. However you look at it, the exercise will cost you – your time, your accountant’s time and possibly a bill for unpaid VAT together with interest and a fine. In addition, there is always a risk that while snooping around he might find something you do not want him to find. Even if you direct him to your accountant’s office, you never know what he is looking for in your records. So the best advice is to avoid the visits altogether. But how? You can’t kid a computer can you?

Top secret

The VAT man likes to keep secret what his "black box computer" actually does with the numbers you put on your VAT return. He mutters about trends and statistical analysis but in all honesty the red warning light comes on if you ask him for money, especially if you’ve only paid in the past. However facts are facts and if your input tax exceeds your output tax on the return then there is no reason why you shouldn’t make a claim for repayment.

Tip. Don’t give him a reason to pick you out from the crowd. If the repayment is a small one consider holding back some of this input VAT surplus. Use it instead to reduce the VAT bill on the next return. This way you’ll pay a small amount of VAT earlier but won’t hit the "suspicious" list by asking for a repayment.

Play the numbers game

When it comes to individual input and output VAT figures on the return the computer plays a percentage game. The rules of this game are quire simple. So why not play along?

Outputs

This should be 17.5% of the net sales figure given on the VAT return. This is usually calculated on a quarterly basis and certainly annually.

Tip – Play him at his own game. Before you submit your next VAT return, check to see if your declared output VAT is 17.5% of the net sales. If it isn’t try to find out and amend the return before it goes in.

Inputs

By contrast, these should not be 17.5% of the net purchases figure. Remember, not all your purchases contain VAT, some are zero rated and some are exempt. Therefore, it is highly unlikely that you would ever get to 17.5%. Look for a more realistic figure between 5% and 10%.

Hey big spender

The most likely candidate for bucking the trend in your level of input recovery is the purchase of some expensive plant or machinery. This could produce a conspicuous spike in the VAT man’s computer. However, provided it doesn’t flip you into a repayment situation, it shouldn’t lead to any unwelcome attention. After all, every business spends heavily at some time.

Tip 1

Use a simple spreadsheet to monitor the percentages on each return before you finalise it. You’ll be amazed at what errors it throws up.

Tip 2

If you have a query with the numbers on your return but can’t resolve it, don’t delay putting you return in. The number of late returns is another statistic to keep down. Remember you can always correct an error on the next VAT return up to the value of £2,000 – better than a penalty for late or non-filing.

Avoid a potentially costly visit from the VAT man by monitoring the same key numbers on your return as he does. Use these to detect and correct common errors to avoid suspicion.