What Do You Do When a VAT Officer Decides to Drop in Unannounced?

What Do You Do When a VAT Officer Decides to Drop in Unannounced?
HMRC have a new policy of what he calls ‘unannounced visits’.  It all sounds quite innocuous, but what it actually means is that the VAT Officer is turning up without an appointment, entering a businesses premises, uplifting the records, questioning the trader (often in front of customers), and then leaving to examine the records at his leisure.


HMRC have started doing this on a test basis, starting with pubs and garages in selected regions, but they have plans to extend it nationwide in the near future to other cash based businesses and retailers.


HMRC have extensive powers, but they do not extend to giving them the authority to undertake unannounced visits. HMRC’s powers are contained in Schedule 11 of the VAT Act 1994, and allow them to enter premises to inspect goods at any ‘reasonable time’.  What is key to the VAT Officer’s powers are that although he can demand the production of records and fine a business for non-production of those records, it has to be at a reasonable time.  If the records are key to the operation of the business, the VAT Officer has to make copies and provide them free of charge.


HMRC have no automatic right of entry to premises to inspect records, so a trader can legitimately refuse entry if it is inconvenient.  What has happened is that the VAT Officer has turned up at a pub midway through the evening, demanded to examine the till, and then uplifted the records.  They have no authority to do this if the trader finds it inconvenient.  In addition the VAT Officer has no power to put oral questions or demand oral answers on the spot.

HMRC Officers have relied on their reputation to intimidate traders into letting them in and taking the records away.  The trader just assumes they have the power to do it, and so just goes along with it.


What the VAT Officer should do is inform the trader of his rights and also the Officer’s powers, so, in theory, it should go something like this – “I do not have the power to enter your premises but request your permission to do so, and then I would like to uplift your business records and take them away for inspection”.  The trader may be happy to co-operate, but on the other hand, he may just have opened his premises and be dealing with customers, so is unwilling to deal with the Officer at that time and would prefer him to make an appointment to come back later





HMRC issued Business Brief 19/06 on 8 November 2006 confirming that, due to a delay in obtaining the necessary derogation from the European Council, the proposed 1 December 2006 introduction of the reverse charge accounting requirement for specified goods considered to be used in MTIC frauds from would not now take place (they had previously intended to introduce the measure in October 2006). The Brief did not specify a new target date for the introduction but did state that HMRC remain committed to the measure and that, when they are in a position to introduce it, advance notification of eight weeks will be given. HMRC have chosen to remain tight-lipped as to the reasons for the delay but speculation continues to put three EU Member States “in the frame” for raising objections to the UK proposal.


The UK proposal subsequently featured in the agenda for the last ECOFIN meeting of the year on 28 November. That  particular meeting had a significant VAT content, as it also addressed the future of the E-Commerce Directive after 1 January 2007 (see article at left). Whilst there appears to be no doubt that EU Ministers appreciate the seriousness of the susceptibility of the current VAT system to fraud (in particular the carousel/missing trader frauds), there does appear to be differing views on how the problem should be tackled. Views included the introduction of widespread reverse charge accounting for supplies above a certain value, the introduction of targeted reverse charge accounting for specified goods, and the introduction of a wider use of the joint and several liability concepts along the full chain of supply.


The output from the 28 November 2006 ECOFIN records that the discussions did not produce a conclusive way forward. Again, an intention is declared to bring forward the necessary legislative measures by the June 2007 ECOFIN at the latest.


STOP PRESS: Reports are now circulating that one of the three ‘dissenting’ Member States, identified as France, has withdrawn its objections to the UK’s application.  This is considered to be a big breakthrough for HMRC, as the expectation is that the other two Member States will follow suit.  This opens up the possibility of the reverse charge being introduced in the UK by Easter 2007.