HMRC’s approach to business compliance, as noted in their annual report, indicates that they consider that key areas of risk include overclaimed input VAT and under-declared output VAT.
The following are just some of the ways banks may overclaim input tax or underclaim output VAT:
- By incorrectly treating supplies as VAT exempt, when VAT should have been charged;
- Through errors in the operation of the bank’s partial exemption method for recovery of input VAT, including as a result of gaps in the method, or an out-dated method;
- When UK suppliers incorrectly charge VAT on supplies made to the bank, perhaps as a result of errors in determining the VAT treatment of outsourced services;
- As a result of the incorrect application of “reverse charge” VAT.