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HMRC internal manual

VAT Small and Medium Enterprises Assurance Manual

Introduction to Assurance: effects of assurance

The preventive effect is the extent to which traders no longer under declare their liability following Departmental contact. The deterrent effect is the extent to which traders are discouraged from avoidance or evasion, because they are aware of assurance activity and fear detection.

Visiting activities should be directed to areas of the greatest perceived revenue risk.

Traders who are only likely to be selected for a visit occasionally could have fundamental weaknesses in their VAT accounting systems. In addition, they may have misunderstood or misinterpreted VAT accounting, which could remain undetected for relatively long periods. For these traders, the problem does not disappear with the ultimate discovery of the misdeclared tax, particularly under declarations.

A critical role of the assurance officer is to encourage future compliance. By assisting the trader to get it right in the future, future yield can be protected. In practice, this means;

  • offering education and advice;
  • explaining clearly any misdeclarations that have occurred;
  • promoting E VAT services; and
  • promoting business facilitation schemes that could reduce compliance costs.

Often, the burden of the assessed tax arrears is such that full payment is outside the trader’s available resources. If it is obvious that the trader cannot pay tax arrears, then refer them to the Debt Management & Banking. It is essential, therefore, that each visit covers all the main risk areas.

Although VAT visits are not statutory audits, the responsibility of visiting officers is to the tax-paying public at large, rather than to provide assurance to any trader that their true amount of tax has been properly declared. However, traders have a reasonable expectation that where we have examined aspects of the business, we recognise and bring to their attention any obvious weaknesses.

Not to do so can leave us open to claims of misdirection. It is therefore essential that the trader be advised, in writing if necessary, which aspects of the business have been subject to examination where errors have been found, and the fact recorded on the EF report.