Can a business refuse an unannounced VAT inspector?

Legislation

The legislation is very clear, namely that HMRC officers may enter the premises of a business and carry out the following checks:

• to inspect the premises and business assets that are on the premises; and
• to inspect business documents on the premises.

However, a condition of the entry is that the inspection must be “reasonably required for the purpose of checking that person’s tax position” .

The powers do not extend to any part of the premises that is used solely as a dwelling, e.g. the owner’s accommodation might be on the first floor of a restaurant that trades on the ground floor; the inspection powers only apply to the restaurant.

The officers may not just restrict their inspection to VAT issues. Their powers extend to all taxes.

Supply of goods

If officers have reason to believe that any premises are being used for the supply of goods, they have the power to enter and check both the goods held there, and any documents relevant to these goods. But there is again an exclusion for any building or part of a building that is used solely as a dwelling.

The power under this section of the legislation does not apply to a business supplying services, it only relates to supplies of goods.

Seven-day notice period

HMRC will usually contact the business to agree a time when it wishes to inspect the business premises. But what if the business refuses its request? In this situation, it must give at least seven days’ notice of the time and date of its proposed inspection. The inspection must be carried out at a reasonable time, which will usually be during trading hours.

The surprise visit

As may be expected, there are times when officers will want to make an inspection without notice, perhaps because they suspect that tax is being underpaid by a cash business with suppressed sales. Or perhaps they think that stock held in a shop or warehouse is being sold “off record”. They would not want to give advanced notice of their suspicions. After all, doing so would give a genuinely criminal business the chance to hide or destroy evidence that might be vital to recovering public money.

In such cases, officers can only arrive unannounced if the inspection is being carried out by or with the agreement of “an authorised officer of Revenue and Customs”, i.e. either a senior officer in the department or the First-tier Tribunal. Upon arrival, the officer must give the person in charge of the premises a notice giving the right to inspect the premises.

The direction is not a search warrant, so a business does have the right to refuse entry. It can ask the officer to leave at any time during the visit if it wishes. However, the notice given on arrival will state the possible consequences of obstructing the officer carrying out the inspection. It is therefore best to co-operate as much as possible.