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VAT Inspection: How to Prepare and What to Expect

VAT stands for value added tax and is a general tax placed on most goods and services. VAT officers can visit your business to inspect your VAT records and make sure you’re paying or reclaiming the right amount of VAT. 

A VAT inspection can be stressful but with the right advice, compliance and transparency you can ensure it all goes smoothly. We recommend hiring a professional to advise you when the time comes, but below are the basics of what to expect.  

person presenting financial data
VAT Inspections can be demanding and time consuming, but the right preparation can help!

Why are you being inspected?  

There are many reasons that can prompt a VAT inspection. They can be prompted by HMRC noticing a discrepancy in your reporting or they can be a randomised check.  The following are the most common reasons for your business being inspected: 

  • Your business is in a risk sector – HMRC specifically target sectors where fraud and non-compliance are more common.  
  • Business history – if your business has a poor record of compliance, such as default surcharge penalties, late payments or non-payment of VAT.  
  • Inconsistent VAT returns – a change in the profile of your business is more likely to trigger interest from HMRC. 
  • Incorrect information on the pre-visit questionnaire – HMRC often send out a pre-visit questionnaire to help them focus their inspection and gain more information. Having incorrect information on the questionnaire could cause suspicion before a visit.  

How will you know you’re receiving an inspection? 

You’ll receive a letter from HMRC with a date of the visit and a list of records that they want to inspect. Usually HMRC will request to see your records from the last four years. This may include your accounts, sales and purchase invoices, bank statements and VAT accounts. The records HMRC request depends on the nature of your business. 

Read Now: Make the Most of Tax-Deductible Expenses for the Self-Employed 

How to prepare for your VAT inspection 

Once you have received your notice from HMRC the best way to prepare is to review your accounting records.  

You should make your VAT records readily available, along with copies of submitted returns, supporting calculations and access to invoices.  You must also be prepared to explain your business activities and operations to the inspector. 

You’ll need to be able to explain your VAT compliance process which includes: 

  • How the information is logged 
  • Who produces the VAT return 
  • How you generate the figures 

Usually, HMRC will focus on high value transactions which are more prone to mistakes such as:  

  • Vehicles and fuel paid for by the business 
  • Changes to business activity 
  • Exceptional transactions 
  • New income or funding sources 
  • Business entertaining costs 

To help ease the stress of a VAT inspection we recommend reviewing your accounting records for errors and making any necessary corrections before the date of your inspection. A qualified accountant can help you with this, as they’ll have the necessary expertise to thoroughly review and improve your accounts.  

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At Count we have tax specialists who provide expert support!

What will happen during the inspection? 

During the inspection VAT officers will review both your VAT and general business records. These could include: 

  • Copy sales invoices 
  • Purchase invoices 
  • Purchase and sales books 
  • Banking documents (statements, cheque books, paying in slips) 
  • Annual accounts 
  • They might also ask for access to your work computers and any bookkeeping software your company uses.   

Although the VAT inspection can seem overwhelming, the goal of the VAT officers is simply to confirm the accuracy of your VAT returns. It can be helpful to remember this while you wait for your inspection to be completed.  

Read Now: How To Legally Reduce Your Corporation Tax Bill 

Possible penalties 

Due to the many VAT rules and regulations it is relatively easy for businesses to make honest VAT errors. Unfortunately, these errors can lead to significant VAT penalties.  

After the inspection, VAT officers will contact you via letter with their findings. Which if they encountered any concerns, could cover any of the following:  

  • Corrections to your VAT account  
  • Procedural suggestions for your VAT records  
  • Notification of underpayment or overpayment of VAT  
  • Any penalties for non-payment  

You can appeal an HMRC decision but you must do it within 30 days. However, with the right professional help and preparation you shouldn’t encounter any issues. 

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For professional advice on preparing for your VAT inspection, contact us at Count here. 

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