Adviser to contractors warns of 'very active' VAT man

An advisory to contractors is warning that HM Revenue & Customs has been become “very active” in its enforcement of VAT rules in the last six months.

In fact, in the first half of this year, the number of contractors claiming on their fee protection insurance climbed annually by 17% -- and 39% of these were VAT-related, said Abbey Tax.

The advisory suggested that much of the increase was down to HMRC’s Hidden Economy Teams -- ‘HETs’ for short, whose remit includes tracing people evading Value Added Tax.

“The letter the VAT HET typically uses is titled ‘Important – VAT Registration Enquiry,’” explained Abbey Tax’s head of technical research Guy Smith.

“The introductory paragraph will usually state ‘I understand that you are in business but I am unable to trace a VAT registration number for you.’”

If the recipient of the HMRC letter believes they do not need to be VAT-registered, they are directed to complete a four-page questionnaire to put the issue beyond doubt.

Divided into seven parts, the questionnaire probes into the individual’s personal details, trading figures, sales data, business history and other areas.

“HETs search for individuals and businesses who illegally evade tax and VAT as ‘ghosts’ and ‘moonlighters,’ Smith said. “[And they’ve] been very active in the VAT arena”.

His comments coincide with an alert by an accountancy firm that during inspections of smaller companies, the tax authority is using “all means” to rake in revenue via VAT.

One impetus to the burst of HMRC activity could be related to April’s introduction of a new, generally more taxing category for FRS users, which has caused confusion and uncertainty.