The audit process: PERCET: (P) preparation and planning: process
In order to prepare effectively you should examine the trader Sift Report/Feedback Sheet to identify the reasons for selection and study the contents of the trader’s folder, to see whether there are any special features of the trading activities for example, to be looked at during the visit. Refer to V1-37 Control notes to identify any special features and areas of known risk for this type of trader. Read relevant public notices and take copies to issue if necessary.
(This content has been withheld because of exemptions in the Freedom of Information Act 2000)
In general the information provided by the risk team as regards return and payment details should be adequate for audit purposes, such as tax performance, standard/zero rate sales ratio and other analysis and comments but, if it is considered essential to inspect the actual returns furnished, microfilm copies can be requisitioned from the Banking - Microfilm Unit. An explanatory key to the D1600 reports provided by the Risk team is contained in VSME26000 -The Trader Report. Use VISION to check that your information on return and ledger details is current.
Pay particular attention to the details of any changes in liability since the last visit and previous decisions and/or rulings that have been given to the trader. These will be found in previous visit reports or other correspondence in the folder. You should consider whether changes in liability or regulations might have an affect on such rulings and note them for attention during the audit. You must check that the trader is putting them into practice.
Where the trader has computerised accounts establish if the system has materially changed since classification. If you judge that it is appropriate, refer to The Audit Service for consideration of re classification, or visit as necessary.
It is important to consider including associated businesses in the audit, unless the sift has decided otherwise. This is usually more cost effective to us and less disruptive to the trader than arranging a separate audit for each registered business. However, you should ensure that any associated businesses are also subjected to sifting, prior to any audit. The relationships between the businesses should be recorded (on EF Summary and DTR). Where there are separate accounting centres they may mistakenly treat transactions differently. Remember too the risks associated with partial exemption. Where registered traders have associated businesses abroad there are additional risks to consider.
The National Insolvency Unit, based at Queens Dock, Liverpool has the responsibility for dealing with traders who start up and then liquidate a series of companies leaving substantial tax debts unpaid and irrecoverable because of the owners’ limited liability- Debt Management & Banking Manual (DMBM). This is often referred to as the Phoenix Syndrome. It is common to find sole proprietorships or partnerships interspersed in a chain of limited companies, but they normally will not leave a large tax debt because of the threat of bankruptcy. Also common is the practice of paying suppliers, but not government departments. This enables continued trading as a new entity; a hallmark of the Phoenix syndrome.