V5.251 Verification of output tax

Audit methods

V5.251 Verification of output tax

Output tax is calculated from the sales recorded in a person's accounting records. Assurance officers are naturally concerned with three main areas:


    •     that recorded sales are complete and correct


    •     that output tax has been correctly charged (where VAT invoices are rendered) or calculated (where a retail scheme or used goods scheme is used), and


    •     that the amount chargeable has been correctly accounted for in the person's VAT return

Recorded sales are complete and correct

Work done under this area may fall under a number of headings and the means adopted in a particular case will naturally depend upon the type of business, the records available, and 'audit trail' information obtained from outside sources.

Macroeconomic analysis

In a case where the trader's purchase records were incomplete, HMRC prepared an assessment by comparing annual drawings shown in his accounts with estimated expenditure compiled from the Family Expenditure Survey issued by the Department of Employment1. The assessment was upheld. Generally speaking, however, HMRC appears reticent to estimate either output tax or input tax by extrapolation from data on particular business sectors. But this does not mean that such estimation is not within their powers. In Fortunata Silvia Fontana2, the CJEU held that, in the event of serious differences between declared revenue and revenue estimated on the basis of sector studies, tax authorities may use extrapolation, based on those studies, in order to determine the amount of turnover achieved by a taxable person and consequently to

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