Info zone – VAT investigations
Mr Vasco was working late at his take-away restaurant for the 14th consecutive day without a break. It was near closing time and he was looking forward to going home.
Two VAT officers suddenly arrived and identified themselves. They told Mr Vasco they wanted to check his takings, so he agreed to count them up for the officers.
They also told him to fill in daily sheets for the following week, listing every individual sale he made. They said they would check up on him to make sure he was filling in the sheets properly. Mr Vasco was happy to co-operate with the officers.
Business was good the following week. There was a fair on in the town at the weekend and sales were up. The officers said the sheets showed he had not been fully declaring his takings in the past because his weekend takings were so much higher than the earlier weekends. Mr Vasco protested his innocence but received a VAT bill of £65,000 and a penalty of £58,500. He declared himself bankrupt. *
VAT officers are entitled to enter and inspect business premises at any reasonable time
What the expert advises
Vincent Curley is the senior partner in a consultancy practice specialising in advising businesses on VAT investigations and appeals
Small owner-managed catering and hotel businesses are often targeted for VAT investigations. While any small business can make mistakes in its accounting records, many business owners complain that the perceptions of many VAT officers is such that if you are the owner of a small business dealing in cash then you are automatically guilty of understating your takings and VAT.
VAT officers do not have the power to do whatever they want. A lot of the actions taken by officers require the consent of the owner of the business but officers do not always make this clear.
The officers in this situation are entitled to enter and inspect business premises at any reasonable time, but the proprietor did not have to count up his takings there and then, nor did he have to complete the daily sheets as he had till rolls, which satisfied the requirements of the law.
Businesses in this situation should query with the officers what they are and are not required to do in law. They should make a note of what the officers say. Most importantly they should seek professional advice at an early stage.
Individuals in any investigation have rights and are entitled to exercise those rights. Doing everything the VAT man says can be a course of action that can have worse consequences for the business concerned. Experienced professionals can successfully challenge this type of situation and every individual has the right of an appeal to the VAT tribunal.
The law in this area is developing fast. The tax authorities need powers to undertake investigations, but there must also be checks and balances in law to protect individuals' rights. The Human Rights Act came into force in October last year, and is now being used in test cases currently before the VAT tribunals.
The decisions reached in these test cases will have profound consequences and should also enable businesses which have suffered in the past to have their cases reopened and fairly reviewed.
This case study is a work of fiction and consequently the names, characters and incidents portrayed in the article are fictitious. Any resemblance to actual persons, living or dead, events or localities is entirely coincidental.
What the law says
Under the VAT Act 1994, officers have the power to enter and inspect business premises and demand production of business records at any reasonable time. They cannot search without a warrant.
Businesses and retailers must keep a record of each sale and payment made but today's electronic tills fully satisfy this requirement. Every person who receives a VAT assessment and/or penalty has the right to appeal to a VAT tribunal.
Contacts
Vincent Curley and Associates
01327 340298
Email: vjcurley@aol.com
