VAT investigations are sometimes triggered where a routine VAT inspection uncovers irregularities, unusual declarations and repayment claims, or where the taxpayer operates in a sector deemed “high-risk” by HMRC. Depending on the severity of the suspected offences, HMRC may launch an investigation under the Contractual Disclosure Facility and Code of Practice 9, or, in the most serious cases, launch a criminal investigation.
Intervention by HMRC can be initiated by pre-notification of an enquiry at one end of the scale, to an unannounced on-site inspection at the other. Taxpayers may be required to produce large amounts of documentation and to provide information to HMRC and may also be asked to attend a meeting to explain how their business works. It is extremely important to bear in mind that there are legally defined limits to the documents and information that HMRC is entitled to and that taxpayers are not obliged to attend any meetings.
On conclusion of their investigation, HMRC will issue an assessment of the VAT understated or over-claimed. It is important to remember that, if HMRC find errors in the taxpayer’s business records they may, as part of the conclusion of the investigation process, issue a penalty notice. A penalty notice may, for example, be issued where HMRC discover errors in the relevant financial records, even if the mistake was due to carelessness rather than any deliberate behaviour on the part of the taxpayer. Such penalties can be for substantial amounts. There may, however, be opportunities to reduce the proposed penalties or structure a more favourable payment plan.
In dealing with HMRC there is no substitute for experience. Levy & Levy have immense experience with all types of HMRC investigation. VAT investigations can be both time consuming and stressful for taxpayers. We protect our clients and steer them towards the best possible outcome with HMRC, utilizing tax technical and factual arguments where appropriate to mitigate any tax payable.