What Triggers a VAT Inspection?

A VAT inspection consists of HMRC getting in touch with or visiting your company to go through the VAT records. The purpose of this inspection, which consists of a series of compliance tests, is to make sure that the company is accounting for VAT correctly.

HMRC will often contact a firm ahead of time to schedule a mutually agreeable time to conduct the inspection; but, in exceptional circumstances, they may also visit without notice or an appointment.

Below, the business tax experts at The VAT People outline the reasons why your business may be subject to a VAT inspection, and what you can expect from them. 

What provokes VAT inspections?

Though they can appear to happen at random, a VAT inspection or more thorough inquiry will almost certainly be connected to one of the following triggers, which are hard to forecast in advance.

• One or more of your VAT returns underwent a "credibility check," and your company failed it.
• According to HMRC, your company operates in a higher-risk industry. It's possible that HMRC has received suspicious information about your company and its VAT filings.
• HMRC noticed unusually high rises in VAT claims or new instances of VAT claims. If a first VAT return indicates a net payback, an inquiry will nearly always be opened.
• Your compliance history may be marked by penalties, late or non-payments of VAT, or other irregularities.

HMRC has a number of extremely effective technologies, such as the "Connect" software, that can track out minor inconsistencies in all types of tax returns, including VAT.

FAQs

How far back can a VAT inspection go?

Only records dating back four years are subject to HMRC's investigation, unless fraud is discovered during the inspection. 

HMRC has the ability to examine data dating back 20 years if fraud is suspected. However, if the eligibility for a VAT refund is being checked, a VAT inspector might only wish to look at one VAT return

How do I know if HMRC is investigating me?

You will likely receive a letter from HMRC detailing the reason for the inspection and whether the inquiry relates to a specific issue or is a more general examination of your taxable activities. 

The number of tax-related HMRC inquiries is rising. The treasury wants to aid in the recovery of the significant financial outlay made by the UK government for its COVID-19 pandemic response by safeguarding tax revenues, particularly VAT.

Therefore, companies should prepare for a higher likelihood of VAT inquiries in the upcoming months and years

How do I prepare for a VAT inspection?

Set aside adequate time as a VAT inspection may take a large amount of your attention. 

Ensure that you have accurate records for each period to form part of the review, not just the most recent one. Time spent prior to the inspection reviewing potential areas of inquiry can save time and allow you to gather all the necessary information to avoid having to conduct several exhausting searches afterwards.

Find out more about VAT inspections

The VAT People have helped countless businesses through the stressful time of a VAT inspection. Our team of specialists is best-prepared to help you understand your duties and how to ensure the smooth running of your business’s VAT inspection.