VAT audits on the rise for EU

Businesses, large and small, trading in the EU will require to ensure their European VAT compliance is fully watertight to withstand increased questions from their local tax authorities wishing to stamp out VAT evasion and non-compliance. Companies have not generally been accustomed to heavy public audit, based on the limited inspections being carried out by their tax offices. Without question, as additional tax revenue raising can provide positive budget contributions, EU tax offices will be bolstering their inspectorate resource, fully supported by their governing politicians.

By way of example, recent news in the UK underlines this approach. Her Majesty’s Revenue & Customs (HMRC) has reported figures relating to VAT evasion over the year 2010/2011. Through its inspections and actions £1.34 billion of additional UK VAT revenue was raised. This figure was three times the size of the previous tax year and reflected increased scrutiny by HMRC. Indeed, the number of businesses under investigation was up by more than 40%.

Prime Minister Cameron, Chancellor Osborne, and the Treasury Minister, David Gauke have all pointed fingers at tax avoidance whether it be the local tradesman asking for cash-in-hand or celebrities channeling income through off-shore companies in complex schemes set up by highly skilled professional tax accountants. Clearly the spotlight is also on their civil servants. Are businesses taking liberties and if so, what is being done about it?

Across the eurozone and other countries, EU VAT offices will be under the spotlight to increase tax collection performance. By drilling down their efforts will be rewarded. In addition, as businesses tighten their belts in anticipation, further funding will automatically be generated.

EU businesses can undoubtedly expect tougher inquisitions. VAT inspections are unwanted, protracted, costly, time and resource stealing distractions. By checking out VAT compliance in advance, these situations can be minimised or even avoided. Prudent EU businesses will be taking steps to double-check their compliance procedures are fit for purpose.