Tax Category Tax: calculations, VAT, self-employment tips and more

Vat audit checklist

Her Majesty's Revenue and Customs service, or HMRC, is a department of the United Kingdom, or UK, government, responsible for administering and collecting taxes, including Value Added Tax, or VAT. VAT is a tax on the sale of goods and services, and is a requirement of the European Union, or EU. As an EU member, the UK has a legal obligation to apply VAT, and HMRC inspectors may audit the records of all businesses registered for VAT in the UK.

Previous VAT Returns

Typically, businesses registered for VAT file returns quarterly, and it is essential that all the records relating to each filing are saved and made readily available for the HMRC inspector to look at. According to DIY Accounting, an inspector will typically look at the most recent VAT return, plus a return from the previous 12 months and a return from any time in the previous two years. If any of the figures in those returns seem anomalous to the inspector, the inspector may then select specific returns to audit in greater detail.

Sale and Purchase Invoices

Whenever you make sales that are included in a VAT return, you must issue an invoice containing specific information required by HMRC. Sales invoices must contain the date and time of the sale, the financial value of the sale, your VAT registration number and an invoice number. You must also include information describing the services or goods that you supplied, along with the name and address of your customer. The amount of VAT included in the sales price must also be shown on your invoices. You should check to ensure that all invoices for sales included in your VAT returns conform to the requirements of HMRC. It is also important for you to have invoices from all of your suppliers, for items that you have included in your VAT returns. Businesses registered for VAT can claim back the VAT content of all goods and services purchased to be used in the running of the business, but all services and goods purchased, and included in a VAT return, must have matching invoices, conforming to HMRC invoice requirements.

Bank Account Statements

You must always ensure that purchases and sales relating to the running of your business are accounted for in your cash and bank account records. According to DIY Accounting, the VAT inspector may gain a general overview of your business from these accounts, by checking that they generally map to the scale of your business as included in your VAT returns. The VAT audit inspector may want to trace some transactions using bank and cash account information, to demonstrate the authenticity of sale and purchase invoices, and to gain a general overview of the financial activity of your business. For example, bank account statements that show inputs of money that are significantly greater than would be expected based on the figures contained in a VAT return may look suspicious to the inspector, and give him reason to perform a more detailed, and therefore time-consuming investigation.