Tax FAQ

Customs Inspection

I have had a call from Customs about carrying out an inspection. Why are they coming and what will they do when they are here?

Customs are not necessarily carrying out an inspection because they believe something is wrong. Customs organise their inspection programme to visit all registered businesses over a period of time, so it is possible that ten years can elapse between visits. However, the inspection programme is based on the potential complexities of the business and the risk to the revenue, so certain events can cause visits to happen more frequently or outside the standard visiting routine. Such events include:

• Failure to submit VAT returns on time on a regular basis. This indicates weaknesses in the VAT accounting system, so Customs will visit with the intention of improving the compliance record and VAT accounting of the business.
• References from another VAT office where a previous visit to another business has indicated that one of its suppliers is not dealing with VAT correctly. This could mean that the business is not issuing invoices properly, or that the transaction may not have been accounted for in the right return.
• Risk analysis - certain types of businesses will be visited because Customs believe there is a high risk that VAT may not be dealt with correctly. For example, cash businesses, such as restaurants or takeaways, may be visited as part of a national programme.
• Abnormal trading patterns. A sudden drop in the amount of tax being declared, or an unexpected claim for VAT, can also trigger an inspection.

During the inspection, the Customs officer will spend most of the initial visit discussing the activities of the business to establish the full scope of the VAT position. The officer will then examine the VAT records, tracing the VAT returns back through the accounts to the original invoices or takings. The officer will usually carry out a detailed examination of three or six months’ records (depending on the volume of records) and a superficial check of previous periods, to establish whether the VAT accounting is credible and a reasonable reflection of the business.

The officer will end the inspection by raising any concerns with the operator of the business and, if necessary, make recommendations for improving the VAT position. If there is an under-declaration of VAT, the officer will inform the business of the reason and raise an assessment back at the VAT office.