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HMRC internal manual

VAT Small and Medium Enterprises Assurance Manual

Challenge of selected purchases and importations: introduction

  • VATA 94 Section 73(7) provides that if a taxable person fails to account for goods received or imported, the Department may assess and require payment of the tax chargeable, as if the trader had supplied the goods in question;
  • you are encouraged, however, to consider the more likely explanation of the stock deficit that a supply has been made at profit and an assessment under VATA 94 Section 73(1) is appropriate;
  • the officer should ask the trader to produce positive rate goods identified as having been acquired on tax invoices or having been imported (whether as equipment, materials or stock) or to demonstrate how they have been disposed of;
  • a trader, who claims that the goods have been lost, destroyed or stolen, should be asked to produce evidence of claims on insurance companies, notification to the police, etc;
  • if the trader is unable to account satisfactorily for the goods, the officer should consider assessing the tax involved under Section 73(1) it should be borne in mind, however, that this Section relates only to tax periods for which the trader has been required to furnish returns;
  • if, for this or any other reason, an assessment under Section 73(1) is considered inappropriate in a particular case and you consider that an assessment under Section 73(7) may be more suitable, the matter should be reported urgently to TAA Mailbox.
  • failure to account for goods challenged under this table will automatically make the trader suspect and, apart from the action indicated above, may indicate the need for an urgent investigation involving a full stocktaking;
  • you should consult your manager with a view to determining whether this should be undertaken;
  • if it is decided that investigation is not warranted, the reliability indicator is to be set at 2 or 3 as appropriate;
  • the possibility that stocks have been “borrowed” from other traders in order to conceal a deficiency must not be overlooked; and
  • false exports can conceal stock deficiencies/sales of goods tax free in the UK.