Figures recently obtained and published by RSM Tenon under a freedom of information request indicate a rise in penalties issued by HMRC. Our own experience suggests that HMRC is now applying penalty rules in relation to VAT errors more strictly than it did when these rules were introduced. Under the current penalty regime HMRC will not issue a penalty for an error in a VAT return or document if the business has taken reasonable care. Seeking professional advice is one way to demonstrate to HMRC that the business has taken reasonable care. CVC’s VAT and Penalties Booklet provides further information.
There are steps that any organisation can take to reduce the risk of penalties. We recommend that our clients regularly review their activities and procedures. In particular:
- VAT liability
- Has the business’ activities changed since VAT advice was last sought?
- Has the business considered where its customers ‘belong’ for VAT purposes?
- Has the business considered the place of supply of its services?
- Does the business hold the necessary evidence to support:
- input tax claims,
- zero-rated dispatches and exports, and
- option to tax notifications?
- Partial exemption calculations
- Has an annual adjustment been done?
- Is the VAT recovery ‘fair and reasonable’?
- Has the Standard Method Override been considered?
- Capital Goods Scheme
- Has the business purchased any land or buildings?
- Has the business re-developed or extended any existing property?
- Has the use of any of any capital items changed?
- Error correction
- Have any errors been identified in previous VAT returns?
- Have these errors been corrected on a subsequent VAT return?
- Have HMRC been notified of the error?
Businesses should also consider risk management as a broader issue; for example, do staff need VAT training and does the business have VAT procedure manuals in place.
CVC offer a VAT Review service. A VAT review considers all areas of a business or organisation to determine the VAT liability of supplies and the need for any restriction of recovery in respect of VAT incurred. At the end of the process a detailed report is produced highlighting areas of concern and potential opportunities for VAT savings.
Our larger clients often prefer a regular arrangement whereby VAT returns are reviewed quarterly. This allows us to identify any issues promptly and mitigates the risk of errors and penalties.
If you would like to discuss any of the services CVC offer further please contact us on 01206321029 or info@ukvatadvice.com and one of our consultants will be happy to speak to you.