Licensees should make the most of free tax advice. Phil Mellows explains.
Over the next six months thousands of pubs around the country can expect a visit from their friendly local VAT officer - not all of them announced. It is the kind of thing that might make any licensee nervous, not because they know they have done something wrong but because VAT is seen as one of those shadowy arts in which you can never be quite sure.
For its part Her Majesty's Revenue & Customs (HMRC) is eager to reassure you that its campaign is not designed to catch you red-handed fiddling the books - merely to help you do things properly.
But it will want to inspect your accounts and it is as well to remember that the merger of the Inland Revenue and Customs & Excise means that it's not just VAT discrepancies the officer will be looking out for. He or she will also be obliged to report such matters as non-deduction of income tax and National Insurance from staff wages, payments below the National Minimum Wage and even failure to display a gaming machine licence.
Nevertheless, you should view the visit as an opportunity to get some advice and support from an expert - and to make them aware of the practical difficulties you and the trade as a whole face when it comes to VAT.
"One of the benefits we hope to achieve in this campaign is that HMRC staff will be briefed about the issues facing pubs, will become increasingly familiar with the trade and our help and support will be increasingly relevant," says HMRC spokesman Jan Marszewski.
"Many of the VAT problems faced by pubs are exactly the same as those faced by other small businesses, and we do not believe the problems are getting any worse. But it is, of course, important to maintain accurate, up-to-date records of takings and business transactions."
If you receive a visit, you are obliged by law to produce your books, although if it is an unannounced visit and they are not available or you are too busy to discuss them, you can make another appointment.
So what kind of traps can small businesses fall into when it comes to doing the VAT? Andrea Clarkson, a director of top accountants Deloitte, says problems fall into two camps - knowing how to deal with the awkward items of income that come into a pub and getting your books into such a shape that they will not attract the suspicions of a VAT officer.
"Pubs have various items of miscellaneous income - including gaming machines, cigarette machines and so forth - and the VAT formula depends on whether the licensee is getting the full amount or a percentage of this take," she explains.
"Then there are promotions, such as money-off vouchers and two-for-one offers, and whether VAT is processed on the cash actually received or on the market value.
"Tenants might also face the question of how their rent is split for domestic accommodation - they may not be charged VAT on the full rent," says Andrea.
"When it comes to doing the books, the important thing is that your numbers add up.
"A VAT officer will be looking at the overall credibility of your business, whether your income matches your accounts.
"It is a compex area and I'd advise any licensee to speak to their accountant and make use of the free advice available from HMRC."
For VAT advice and information on how to simplify your returns:
- Call HMRC National Advice Service 0845 0109000
- Visit www.hmrc.gov.uk.
Here are some of the more common problems found by VAT officers on visits to pubs and similar businesses
Problems in accounting for purchases
- Claiming input tax without evidence to support the claim, for example not having a purchase invoice, or having an invoice that does not show your supplier is registered for VAT
- Claiming input tax on purchases for personal or private use, for example private telephone calls or cars which are not wholly for business purposes
- Claiming input tax on business entertainment.
Problems in accounting for sales
- Not accounting for output tax on all standard rated sales. This can happen because:
- cash in the till at the end of the day is recorded rather than the total takings omitting money paid out for wages and so on
- some parts of the business, for example food sales and functions, are inadvertently omitted
- Not accounting for output tax on fuel used for private motoring
- Not accounting for VAT on sale of assets such as fixtures and fittings and equipment.
- Tax point errors - not accounting for output tax or claiming input tax at the right time. For example:
- missing the last few days' takings from a return by only accounting for whole weeks
- claiming input tax for purchases when the date on the invoice is after the end of the month
- Arithmetic/accounting errors - transposition of figures, double-counting or missing page totals.