If you are a VAT registered trader in the UK then in addition to issuing vat invoices and filing regular vat returns you should also remain ready for a vat audit by maintaining proper records. An audit could be initiated by the hmrc vat department if they get suspicious about certain financial activities or could be initiated simply to check if you are adhering to the supplied guidelines.
The United Kingdom has embraced the system of vat or value added tax along with most eu countries including Germany, Spain, Italy, Sweden, Poland, etc. Although the language in each vat invoice might be different along with different vat rates on various goods and services, the basic system of vat is still the same in each country. Once your sales turnover in the UK touches the vat threshold limit of £70,000 then you will have to apply for vat registration.
Upon turning into a vat registered trader, you will be bound by uk vat rules that specify that your vat invoice has to mention your vat number, vat percentage, vat rate and vat amount in a format specified by the hmrc vat department. You will also need to file vat returns based on your goods and service classifications and your sales turnover. You vat returns will need to summarize all vat amounts paid during purchases and collected during sales within the specified period. All excess vat collected will also need to be paid to the hmrc.
However, vat officers at the hmrc might compare your vat returns with earlier periods and in case they do spot any anomalies, or if they feel that they need to get a detailed clarification on certain vat figures then they might initiate a vat audit. They may do so by either visiting your business premises or even clarify a few doubts over the phone. If they do visit your business premises to conduct an audit then there are several financial records that they will surely check to satisfy their doubts.
Vat officers will firstly compare random or each vat invoice with your sales books and vat return to cross-check if you have indeed recorded each sale as required by the vat rules. In addition, officers might also check your cash and bank accounts or books during the same period to verify if your purchase and sales figures correspond to an increase or decrease in balances as they would normally tend to do so. A few purchase or sales invoices might also be cross-checked with the respective parties to verify the genuineness of the same. Thus, maintaining up-to-date accounts at all times will surely help you emerge out of a vat audit without any problems.
On your part, you should appoint a vat agent conversant with uk and eu vat rules, especially if you import goods and services into the UK and also make regular vat refund claims. Your vat agent should also conduct regular internal audits to ensure that any mistakes made are caught quickly and rectified before they reach the table of the hmrc vat department.
Maintaining proper financial records is compulsory if you want your business to run smoothly. If you are a vat registered trader then you should certainly take additional efforts to maintain genuine financial records of all books of accounts including vat purchases and sales so that any sudden vat audit imposed upon you is handled without any penalties or interruptions to your business.