Unannounced HMRC inspections are becoming the norm

A HMRC investigation can be intimidating, particularly if inspectors arrive at a premises unannounced.

This happened in a recent case handled by Gerald Edelman’s Tax Investigations & Dispute Resolutions team, whereby a ‘Shadow Economy’ team arrived at a client’s fish and chip shop one Friday evening. The client wasn’t registered for VAT due to a relatively low turnover, and HMRC wanted to record sales for an entire evening. They would then compare those sales to a similar evening and if low, they would extrapolate the ‘true’ turnover figures.

When can an inspection be carried out?

Unannounced visits by HMRC such as this must be sanctioned either by an ‘authorised officer’ or the tax tribunal and have to be ‘reasonably required’ for the purposes of HMRC’s compliance check. Inspections also tend to be carried out by HMRC joint disciplines with direct and indirect officers working together.

Unannounced visits are rare and, generally speaking, will only occur in instances where a business has repeatedly ignored requests from HMRC, or where HMRC reasonably believe that giving notice would likely result in records being destroyed etc.

HMRC visits can take place at ‘any reasonable time’, however, with respect to the restaurant and takeaway food sector, it is commonplace for HMRC to carry out late-night visits. The purpose of this is for HMRC officers to be present during ‘cashing up’. Such late-night, unannounced visits do not give businesses chance to confirm the identity of the visiting HMRC officers.

When you are the recipient of a VAT visit from HMRC, you are entitled to representation and we would strongly recommend that specialist representation is utilised in such circumstances.

Your Rights

It is important to recognise that HMRC’s powers are not absolute and that they do not have the right to enter your premises without permission. A business owner is not obligated to comply with an inspection notice. In our experience, it would appear that HMRC are increasingly using unauthorised visits as part of their wider VAT strategy, targeting particular trades such as restaurants or takeaway businesses, apparently without appreciation for how intimidating and disruptive this can be for businesses.

In the case mentioned above, our client telephoned our VAT specialist team, and we immediately advised the client to refuse entry to HMRC. HMRC can only inspect a premise at a time that is fair and reasonable. Turning up at short notice is unlikely to be fair and reasonable but most people would be unaware that they could be refused. In this instance, we assisted our client with arranging a meeting at a convenient time with our VAT specialist team being present, and also monitored HMRC during the evening visit. Resultantly, the takings were in line with a normal week and HMRC closed the enquiry.

Please be aware that while HMRC can normally only go back four years for underdeclarations of VAT, a backdated VAT registration has no such cap and the potential for a large VAT bill over a number of years, as well as penalties, is very real.

VAT consultancy and services for businesses

The VAT team at Gerald Edelman has over 40 years of experience working in the private sector; we are also all ex-HMRC VAT inspectors. The team have a proven track-record in advising on all areas of VAT for businesses across a complete spectrum of industries. This experience sets us apart from other firms and gives our clients extra reassurance that their tax obligations are covered from every possible angle.

We offer complete transparency over fees up front and are always happy to provide a quote for the specific services you require. As well as providing year-round coverage for businesses through a range of tailored services, we also support clients on one-off transactions such as selling a house or purchasing a business.

Sectors we work with:

Our VAT team can assist all businesses and across all sectors, including:

• Accountants, law firms, architects and other professional practices
• Financial services firms
• Commercial and residential property investment, development and construction
• Technology and media
• Importers and exporters
• Overseas businesses trading in the UK
• Charity/Non-profits
• Education
• Beauty clinics

Our VAT services include:

• VAT reviews and ‘health checks’
• VAT Registration applications, including for exemption /exception from registration.
• VAT group applications, including reviews to determine if forming a VAT group would be logical /advantageous.
• Advice on the VAT implications of corporate acquisitions and disposals, new ventures, business transfers and restructuring
• Reviews of VAT recovery methodology and where appropriate, seeking to agree special methods with HMRC
• Advice on property development, including the VAT liability of construction services, intended supplies and the
• VAT recovery position etc
• Guidance on the construction services domestic reverse charge
• Advice concerning international supplies of goods and services, including trading with the EU post Brexit
  Contract reviews and checking VAT clauses
• HMRC dispute resolution, including appeals to the Tax Tribunal
• Tailored VAT training and presentations
• VAT due diligence
• Transaction costs recovery reviews

For VAT Registration – here’s further detail on what we offer:

• Assist with standard application submission to register /deregister for VAT purposes
• Determine whether a client has an obligation or an entitlement to register for VAT
• Seek to agree a backdated effective date of registration in order to maximise VAT recovery
• Seek to minimise any ‘Failure to Notify’ penalty that HMRC may issue a result of a late registration

Contact our VAT team today if you have any further questions on how we can guide your business through a VAT inspection.

Last updated: 03.01.2025