Taxman Ramps Up Investigations In Face Of Business VAT Challenges

The taxman has stepped up VAT investigations in response to businesses looking at ways to limit their VAT liabilities, with HMRC clawing back £1.34 billion in the 2010-2011 tax year, more than treble the amount they paid the year before, according to data released under a Freedom of Information request.

The data also revealed that the number of companies investigated rose by forty-two percent in the same period; and this number is set to increase, as the taxman’s target for 2012/2013 is an additional £7 billion per year.

In a bid to reach the department’s target, HMRC inspectors are collaborating to undertake combined investigations of direct taxes, VAT and employer compliance.

Apparently the taxman is scrutinising businesses’ VAT calculation and focusing on potentially ‘grey areas’ such as the accounting treatment of VAT, as HMRC seeks to increase its revenue.

Following the news that HMRC are to step up their VAT investigations, some experts have expressed concerns that an investigation ties up a business’s time and human resources for an extended period, hampering their ability to plan ahead.

While HMRC has new powers regarding ‘information requests’ and are able to visit business premises to inspect records in connection with all aspects of a business’s tax.

However, HMRC said that the reported figures had been “distorted” by exceptional items, such as the one-off sum of £500 million brought in by investigations into the leisure and gambling industry.

A spokesman for HMRC also said that it “works hard to ensure that the right amount of tax is paid at the right time”, adding that its focus on tackling tax avoidance had prevented billions of pounds being diverted from the Exchequer.

Rob Chedzoy specialises within providing tax planning advice, support and guidance to owner-managed businesses.

Posted in Blog.