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HMRC internal manual

VAT Small and Medium Enterprises Assurance Manual

The audit process: estimation for completion of VAT return: final return verification

If a final return has been selected for verification the officer must, at this last opportunity, seek to finalise the trader’s overall tax position at the effective date of deregistration. In addition to verifying the final return, the officer should consider carefully the credibility of other returns furnished since the last audit and, as necessary, extend verification to those earlier periods.

Traders in the course of deregistering are subjected to the same sift routine as other traders, but additional information may be provided by the Deregistration Unit, which makes a visit essential. Remember the need to check assets on hand at cessation, by visit if appropriate. Any VAT 4 produced should be clearly marked across the face “REGISTRATION CANCELLED” and returned to the trader.

The officer should confirm that the final return is a complete and accurate account of the trader’s tax liability for the period covered, for example the period between the end of the last full tax period and the day preceding the effective date of cancellation. Once the trader’s registration has been cancelled, any subsequent claims for repayment, for example because some input tax has been omitted, may cause accounting difficulties. Therefore, it is important to ensure that all inputs, outputs, and any tax due on remaining stock and equipment are included in the return. See VATSC - Supply and consideration for further details.

If the trader regularly receives self-billed invoices from customers, care should be taken to ensure that there are no supplies for which such invoices are outstanding at the time the final return is made, and that, if this trader remains a supplier, the customer knows that they are deregistered. If the trader is continuing to trade, but below the registration threshold, a reference on VAT 452 should be raised to the customer.

The officer should ensure that the value of the stocks and assets on hand at the date of deregistration, on which tax is being declared, is adequate, bearing in mind that tax is chargeable on the cost value of the stock such as the price (excluding VAT) at which the goods were acquired by the trader. The value of used equipment may be taken as current value, such as the price the trader would have to pay if bought in its used condition on or about the date of deregistration.

If there is a marked discrepancy between the tax declared as payable or repayable and the amount estimated under the general review, the officer should ascertain the reason. When verifying the final return of a partly exempt trader, the officer should try to ensure that the trader has made any necessary final adjustment of deductible input tax.

Under declarations and over declarations discovered should be dealt with in accordance with VAEC - VAT Assessment and Error Correction. You should make yourself aware of the assessment procedures which come into play when the trader’s details are no longer “live” on VISION.

If registration is being cancelled because the value of taxable supplies has fallen below the prescribed limits, it should be made clear to the trader that the turnover must be kept under continual review. The Department should be notified at once if the trader again becomes liable to be registered.