Munster’s first independent VAT consultancy practice providing specialist VAT and Indirect tax advisory, assurance and interim management support services to owner managed businesses, small & medium enterprises, accountants and legal practices.

Revenue continue to target cash businesses

Wednesday, September 28, 2011

by Nick Ryan

It is as we expected, when tax yields are down where, from a Revenue perspective, is the most logical sector to target to gain quick revenue wins and increase the tax yield are the sectors where cash is king. Retailers, restaurants, cafe’s and any other cash trader remains the primary focus.
Over the past months we have seen a number of exploratory moves by Revenue including approaches in the food sector, as to the VAT treatment of smoothies and within the retail sector, over the application of cash tills for accounting and, particularly within the corner shop/confectioner area, a focus on both hot and cold food and the margins and mark ups applied.
I recall from my time with HM Revenue & Customs those days of sitting above confectioners’ premises and carrying out the product line mark ups to calculate an overall retail mark up in order to assess whether the VAT being accounted for was credible. Also, inspections on cafes, restaurants and take away outlets brought with them the misery of testing the margins applied, looking at wastage and portion sizes all driven by my departments view that any margin or mark up stated by the proprietor was likely to be over-stated and a source of quick win assessments. Nothing has changed and the Revenue here apply the same engrained approach.
So what can businesses do? Here are some questions they should ask themselves about their VAT accounting. If the answer given is a negative or has a degree of uncertainty, if it brings with it a recognition that the position is based on a historical view then further consideration is required.
– Does my till system meet with current Revenue reporting and accounting requirements?
– If I use an average weighted mark up to calculate the amount of VAT on sales due, when was this last reviewed?
– Has my business changed in the last three to four years?
– Are my products the same as when I reviewed the position last?
– What are my leading lines now as to the last review?
– Are my prices the same?
– Do the margins I apply to the products sold support the turnover of the business?
– Have I applied the correct rate of VAT to each product?
– Is the wastage figure applied reasonable?
– Have I applied the VAT rules for my business sector correctly?
– Have I dealt with multi buys, discounts, offers etc. correctly?
– Am I reclaiming all the VAT I am entitled to?

These are just some of the questions that should be asked on a regular basis to ensure that the business is demonstrating that they are accounting for, and managing, their VAT affairs to the best of their ability and thereby endeavouring to account for VAT correctly.

As I said where these questions result in a “No” answer or an element of doubt then the business needs to take the necessary actions to address these concerns and potential errors.

We at the VAT Practice can assist a business both initially in the identification of the level of risk and assess their current VAT reporting and accounting status. We can carry out product line reviews and assess weighted mark ups and margins to determine their credibility in line with the VAT reported. Where issues are identified we can work with the business in resolving these and in developing VAT reporting and accounting systems that enable to manage their VAT affairs and reduce the potential for error.

Please contact us for more information on how we can assist.