Late last year, HMRC issued their Guidelines for Compliance (GfC) 8 update. This framework is designed to help UK VAT-registered businesses ensure accurate VAT declaration. They outline HMRC’s recommended approach to VAT accounting and compliance processes, aiming to reduce the risk of errors and improve overall compliance.

Businesses should be aware of the guidelines and ensure that they are processing VAT returns and applying other compliance obligations in line with HMRC’s expectations. It is likely that the GfC8 framework will form the basis of HMRC compliance reviews. Businesses not following or not aware of the guidelines will find it harder to mitigate penalties in the event of errors if the guidelines have not been incorporated into a compliance process.

Purpose and Scope

The GFC8 guidelines are specifically for businesses that use invoice accounting, meaning they account for VAT when invoices are issued and received. The guidelines help businesses understand HMRC’s expectations as they plan, carry out, and review their VAT accounting and compliance processes. They highlight systems and processes that may impact VAT compliance, such as sales, purchases, and preparation of the VAT return.

General Approach to VAT Compliance Controls

The guidelines provide a general approach to VAT compliance controls, including risk management, control design considerations, and documentation for internal controls. They emphasise the importance of identifying and assessing tax risks and implementing effective controls to mitigate those risks. The guidelines also recommend using automated tools for process mapping and mining to accurately model business processes and identify variations and errors.

Key Areas Covered

The GFC8 guidelines cover several key areas of VAT accounting and compliance processes being:

1. Order to CashFocuses on the processes from order placement to cash receipt, ensuring accurate VAT accounting throughout the transaction cycle.
2. Procure to PayAddresses the processes from procurement to payment, highlighting controls to ensure VAT compliance in purchasing activities.
3. Employee ExpensesProvides guidance on managing VAT compliance for employee expenses, including reimbursement processes.
4. Record to ReportCovers the processes for recording and reporting VAT transactions, ensuring accurate and timely VAT reporting.
5. VAT ReportingFocuses on the preparation and submission of VAT returns, including manual adjustments and the use of compliant software packages.
6. OutsourcingAddresses the use of third-party services for VAT accounting and compliance, ensuring that outsourced activities meet HMRC’s standards.
7. Correcting Errors and GuidanceProvides guidance on identifying and correcting VAT errors, as well as implementing corrective actions to prevent future errors.

Risk Management

Risk management is a crucial aspect of the GFC8 guidelines. Businesses are encouraged to identify, evaluate, and prioritise risks, followed by applying appropriate controls to reduce those risks. Good practices for risk management include keeping controls and procedures up to date, regularly evaluating their effectiveness, and ensuring employees are aware of their responsibilities.

Next Steps

Businesses are expected to review (and to evidence such review) their systems and processes regularly to ensure compliance with the GFC8 guidelines. This includes working with different business areas to reduce the risk of VAT errors and implementing additional controls where necessary.

HaysMac can assist businesses in following and implementing the GFC8 guidelines, enabling them to improve their VAT compliance processes, reduce the risk of errors, and avoid potential assessments, interest, and penalties from HMRC.

Please speak to Dougie Todd, Co-Head of VAT, or your usual HaysMac contact if you would like to understand more and discussion how we can help.