Preparing for a VAT Inspection

18 March 2020

VAT is no longer a ‘simple tax’, as it was described when it first launched back in 1973. With international trading, exemptions and mind-boggling rules, how do you ensure you’re in a strong position when the VAT inspector comes calling?

What prompts a VAT inspection from HMRC?

HMRC now uses a more risk-based approach to selecting businesses for a visit. HMRC’s risk profiling system considers several factors including:

  • Sector – sometimes non-compliance and fraud are more prevalent in some sectors than others and therefore HMRC will potentially target these.
  • Business history – if your business has a poor record of compliance then you should expect to receive attention from HMRC.
  • Inconsistent VAT returns – a change in the profile of your business is more likely to trigger interest from HMRC.
  • Large repayments, or a business that is normally in a payment situation submitting a repayment return, are always likely to attract HMRC’s attention.
  • Wrong information on the pre-visit questionnaire – HMRC often sends out a pre-visit questionnaire to help them focus the inspection and gain more information. Complete this questionnaire carefully (speak to your advisors to help with this). Having incorrect information on the questionnaire may create suspicion before a visit.

How will I know a VAT inspection is imminent?

The first communication will be a letter from HMRC with a date for the visit and a list of records that they’ll want to inspect. HMRC will normally ask to see records for the last four years. This may include accounts, bank statements, sales and purchase invoices, VAT account and possibly other records, depending on the nature of the business.

Communication & advice

Once you know who will be undertaking the visit, your advisors could speak to the inspector to confirm the scope of the inspection. Often, visits can be triggered by something specific and it’s important to understand if that is the case and what has specifically triggered the inspection.

It’s perfectly acceptable to request to rearrange an inspection if it is bad timing for your business – for example a seasonal busy period.

How long does a VAT inspection last?

VAT inspections vary in complexity and time. This will depend on how many transactions your business has had and the type of business. Some can often be finished in a few hours; others could take days. You’ll have a better idea if you have an idea of the scope of the inspection beforehand.

Preparing for a VAT inspection

The best way to prepare is to make your VAT records available, along with copies of submitted returns, supporting calculations and access to invoices. Make sure you’re prepared and confident and explain to the inspector your business activities and operations. Be prepared to explain your VAT compliance process, how the information is recorded, who produces the VAT return and how the figures are generated.

There may be focus from HMRC into higher value transactions and areas where they know mistakes are commonly made such as:

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

Seek advice early

A VAT inspection can often be a distraction and worry for business owners and their teams. We deal with VAT inspections for our clients on a regular basis and having this advice and backing from your advisors can ensure an inspection can be far more stress free and less time consuming. If you’ve taken out fee protection insurance, then the fees for this advice may be covered by that insurance.

Be honest

If you uncover an error when preparing for a VAT visit, explain this to the inspector. Explain the full facts of how the error occurred at the start of the visit. In our experience, HMRC will take this into account if reasonable care is shown by the business and this can be beneficial to mitigate against potential penalties.

Ask for time

There will no doubt be questions from HMRC during a visit. Don’t worry if you can’t answer a question immediately. Trying to guess the answer on the spot may feel like the right thing to do but can easily lead to confusion and a prolonged inquiry. Ask for time to come back with an answer. With the complexity of VAT, it’s reasonable to ask for questions to be put in writing so you can respond to them within a reasonable timescale.

Talk to your advisors to seek advice on the answer to the question.


The main things to remember in preparing for any VAT inspection is:

  • Seek help from your advisors early.
  • Find out the scope of the inspection.
  • Prepare records.
  • Don’t panic – VAT inspections are routine and not trying to purposely catch you out.
  • Ask for time to respond to questions.
  • Confirm everything in writing you want to rely on.

Our experienced VAT team will be able to arrange a pre-inspection meeting and can provide comprehensive advice on handling a future inspection or help to assure you that your VAT procedures are sound. Contact us now for more information.

Need more information?

Get in touch with chris wilson on 01604 273782