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HMRC internal manual

Enquiry Manual

Recalculating Profits: VAT: Enquiry Settlements: Other Situations

There are of course other situations which give rise to enquiry settlements and many enquiries will be concluded on a hybrid basis which may include elements of some or all of the situations covered at EM3755+.

Mixed trades

You will need to exercise particular care when dealing with a mixed trade, that is, one which has both exempt outputs and outputs subject to VAT.

Undisclosed cash sales

It is clearly difficult to be certain when making additions for undisclosed cash sales for which there are no invoices or receipts whether these sales are notionally VAT inclusive or exclusive. However, the VAT consequences will depend on the method used to compute the additions.

General approach

You will always need to give consideration to the impact of VAT on your proposed additions. It is recognised that in many cases (as with enquiries themselves), a precise answer may not be readily available and compromise may be required to finalise by what amount, if any, additions are to be reduced for VAT or what deduction, if any, is to be allowed for additional VAT liability.

You should always ensure that any adjustments for VAT or the absence of the need for any such adjustment are clearly explained to and understood by the taxpayer to avoid the possibility of any further dispute arising if he conclude a settlement with VAT officers after the SA enquiry has been finalised.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)