What to consider prior to determining whether to use an intervention: testing credibility: conducting a mark-up exercise
Mark-up exercises are used to test the completeness and integrity of a taxable person’s books and records. Basically, a mark-up is an amount, or percentage, which is added by the taxable person to the cost price of his goods or services in order to achieve a profit.
Mark-ups can be a useful tool:
- during the risk analysis process;
- as a test of credibility during a VAT visit; and
- as an assessment tool.
A taxable person who deliberately submits a VAT return knowing that he has mis-declared his VAT liability is involved in the fraudulent evasion of VAT (VATF23000). Undertaking a mark-up exercise might allow you to discover the evasion and assess for the correct amount of VAT (VATF43300).
For further guidance on mark-ups please see V1-37 Control Notes. Guidance on assessments can be found in the VAT Assessment and Error Correction Manual (VAEC). With regard to any input tax that might have been reclaimed on supplies that have been suppressed see VATF42000.