Phrased in terms of help
Since Customs & Excise merged with the Inland Revenue, the VATman has started to borrow a trick or two from the Taxman. For example, he’s now sending out his own version of an enabling letter. What’s this all about?
What’s an enabling letter?
Right amount of tax. Between May and August 2005 the Taxman issued some letters accompanied by a “frequently asked questions” leaflet. He calls this type of exercise “Small Business Enabling Letters” and it’s part of his “compliance strategy” for personal tax returns. He says it “enables” you to complete your personal tax return correctly and thus pay the “right” amount of income tax.
Interest and penalties. 2005 is the third year in which enabling letters have been sent out by the Taxman. In 2004 he sent out letters saying that a review of the 2003 return had revealed risk areas, and the year before he warned people off claiming business expenses. Whatever the excuse for writing, the message is always the same; if he finds your tax return is wrong he will recover any tax due and charge interest and penalties.
Who’s being targeted?
Old dog, new tricks. The head of the small and medium-sized businesses policy division for VAT is now a Taxman. He has decided that smaller businesses can be encouraged into becoming more compliant, just by sending them enabling letters. Examples of letters that are currently being sent out include:
Example 1. Pubs. The VATman has just sent out a letter to all pubs in the country advising them that he’s starting a six-month programme of visiting pubs (alright for some), just turning up on the doorstep, with the intention of assisting publicans to account for the right amount of tax at the right time. During his years of visiting pubs he has identified common errors that are made (like suppressing takings). What this really means is that the VATman suspects that a number of pubs fiddle their takings and that the threat of an unannounced visit will scare some into reducing the amount of suppression or even making a voluntary disclosure of past “errors”.
Tip. The VATman hasn’t increased the number of inspectors available to carry out visits. So, in reality there is little more likelihood of a visit than there was before.
Example 2. Transport. Coach operators in the North West of England have received a letter stating that during “assurance visits” officers have identified a common mistake - that operators fail to account for VAT on the sale of second-hand coaches. As a result, a number of coach operators have made voluntary disclosures relating to undeclared VAT on coach sales.
Tip. If you claim input VAT on the purchase of any vehicle, remember to charge output VAT when you sell it.
Don’t panic
Conclusion. Although phrased in terms of help, the VATman hopes these letters will scare “customers” into compliance with the threat of an unannounced VAT assurance visit. In reality there is little more likelihood of a visit than normal; probably once every five years
Tip 1. If you receive one of these letters don’t panic, just do your best to comply with your VAT obligations and get on with life. They have been sent as part of a national initiative from the VATman’s head office, not as a result of new information obtained by him.
Tip 2. When it comes to completing your next VAT return don’t do anything differently if you can help it.
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