It's the call every entrepreneur dreads. HM Customs & Excise have your number and the VAT man would like to pay you a visit. Images flash through your mind: stony-faced agents pulling your files to pieces; interrogation under a glaring spotlight; demands for huge sums that will break the business.
You might as well turn yourself in now, and sign whatever confession they put in front of you ... Or take a deep breath and approach the inspection more calmly.
KEEP SQUEAKY CLEAN Since 1993, Customs & Excise have focused their effort on non-compliant businesses and traders - those who have a record of underpaying or paying late - as well as companies in high-risk areas, particularly those dealing with large amounts of cash. So, if you have a demonstrably clean record of sound VAT returns and tax paid on time, you can reduce the frequency of visits, in some cases to one every 10 years. However, any abnormal returns are likely to trigger a visit.
GET UP TO DATE Make sure that all your records are up to date, your cash book is reconciled and invoices and delivery notes all tie up. Most VAT inspectors have little direct experience of the commercial sector, according to Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants, and so are unlikely to sympathise if records remain unprocessed.
CLEAR YOUR DIARY Proprietors should make sure they are there when the inspector calls; he or she may want to question you about the business in general, not just the specifics of your accounts. If you're in meetings the inspector may start looking for other things while waiting to ask you a simple question. 'You may create endless problems for yourself by not being available,' says David Ratcliffe, VAT partner at Grant Thornton in Oxford.
MAKE A HARD COPY The VAT man (or woman) can ask to see any of your records, including purchase and sales ledgers, invoices, contracts and so on. If they are all computerised, then valuable working time may be lost as the inspectors peer into every nook and cranny of your IT systems at their leisure. Providing a hard copy of all the relevant files can make life a lot easier.
Bare your soul. VAT inspectors are like TV detectives: any hint that you are hiding something and they will dig their heels in. You are obliged to let the inspectors visit any part of your premises to have a look. They are not, however, allowed to search or march off with drawers and filing cabinets without permission.
LOOK SMART If you give the impression you run an efficient operation, Customs & Excise are less likely to bother you again.
EXPECT THE UNEXPECTED Customs & Excise don't always make an appointment.
They like to indulge in a little mystery shopping - for example, hanging out in your restaurant to count the diners and make a purchase. They can then return and check that these show up in the books for the day. Alternatively, their hit squad may just turn up for a surprise visit to inspect your records. If they do, it probably means they have grounds for suspicion.
CONSULT YOUR ADVISERS 'If your business is partially exempt or there are similar complexities, you are likely to face technical questions and so you may want to have your accountant there,' says Roy-Chowdhury. 'If your business is relatively straightforward, talk to your accountant beforehand.'
DO SAY 'I'm trying to persuade my daughter to apply for a job with Customs & Excise when she finishes her postgrad degree.'
DON'T SAY 'I'm afraid we can't find the sales ledger, but it's pretty useless anyway. I keep most of it in my head.'