Can HMRC Audit My VAT Returns

If your business is registered for VAT, HMRC has the right to check that you are submitting accurate returns and paying the correct amount of tax. These checks, known as VAT audits or compliance visits, can happen to any business at any time. While many inspections are routine, some are triggered by errors or unusual activity on your VAT returns. This article explains when and why HMRC audits VAT returns, what happens during a VAT inspection, and how to prepare your business to stay fully compliant.

Can HMRC Audit VAT Returns

Yes. HMRC can audit your VAT returns to ensure that your business is accounting for VAT correctly. Under UK law, they have the authority to examine your financial records, invoices, receipts, and accounting systems to verify that your VAT submissions are accurate.

VAT audits may be conducted in person by an HMRC officer or remotely by requesting documentation and explanations through correspondence. Most businesses are selected based on risk assessments, but random checks can also occur.

Why HMRC Might Audit a VAT Return

HMRC monitors all VAT-registered businesses and uses automated systems to identify anomalies or trends that suggest a return may need further review. Common reasons for triggering an audit include:

  • Frequent VAT repayment claims, especially for large amounts.

  • Significant changes in turnover or VAT liability.

  • Errors or inconsistencies between returns.

  • Late or missing VAT submissions.

  • Mismatched data between suppliers’ and customers’ VAT records.

  • Reports or complaints from third parties.

Sometimes, audits are entirely random as part of HMRC’s general compliance checks. Even well-run businesses can be selected without any specific concern.

How HMRC Notifies You of an Audit

If HMRC decides to audit your VAT returns, they will usually contact you in advance by phone or letter. The notice will explain:

  • Why your business has been selected for a visit.

  • Whether the inspection will be in person or remote.

  • The date, time, and expected duration of the visit.

  • Which records or documents you need to provide.

You can ask to postpone the audit if the suggested time is inconvenient, although HMRC expects cooperation and may rearrange only once or twice.

What Happens During a VAT Audit

An HMRC officer will review your VAT records to confirm that your returns are accurate and complete. The inspection typically covers:

  • Recent VAT returns and supporting documentation.

  • Sales and purchase invoices.

  • Accounting software records or spreadsheets.

  • Bank statements and reconciliations.

  • Credit notes and expense receipts.

  • Evidence of import or export transactions if relevant.

The officer may also ask questions about your business operations, VAT schemes used, and processes for recording transactions.

If you use software to submit VAT returns under Making Tax Digital (MTD), HMRC may check that your digital links and data flows meet MTD requirements.

At the end of the visit, the officer will discuss any findings with you. They may confirm that everything is in order or highlight discrepancies that need correction.

Common Issues Found During VAT Audits

During an audit, HMRC often uncovers errors such as:

  • Incorrect VAT rates applied to sales.

  • Failure to account for reverse charge transactions.

  • Missed VAT on employee expenses or business gifts.

  • Overclaiming input tax on personal or non-business purchases.

  • Late adjustments for bad debts or credit notes.

  • Mistakes when using the flat rate or margin schemes.

If the errors are minor and unintentional, HMRC may allow you to correct them on your next return. However, serious or repeated mistakes can lead to penalties and interest charges.

What Happens After the Audit

After reviewing your records, HMRC will issue a written summary of their findings. There are several possible outcomes:

  1. No action required: HMRC confirms your VAT records are accurate and compliant.

  2. Adjustment required: You need to correct minor errors or omissions.

  3. Assessment issued: HMRC calculates the amount of VAT underpaid or overclaimed and issues an assessment for payment.

  4. Penalties applied: If the errors were due to carelessness or deliberate behaviour, penalties and interest may be added.

You will be given an opportunity to discuss and appeal any assessments or penalties if you disagree with HMRC’s findings.

Penalties for VAT Errors

Penalties depend on the seriousness and nature of the error. HMRC categorises mistakes as:

  • Careless: Mistakes made due to lack of reasonable care, with penalties up to 30 percent of the tax owed.

  • Deliberate: Errors made knowingly, with penalties up to 70 percent.

  • Deliberate and concealed: Attempts to hide or falsify information, with penalties up to 100 percent.

If you voluntarily disclose an error before HMRC contacts you, the penalty is usually reduced or waived.

How to Prepare for a VAT Audit

Preparation is key to ensuring an HMRC VAT audit runs smoothly. You can reduce stress and potential penalties by:

  • Keeping all VAT invoices, receipts, and bank statements organised.

  • Maintaining digital records in line with Making Tax Digital rules.

  • Reconciling VAT returns regularly with your accounting system.

  • Checking that VAT is correctly applied to all sales and purchases.

  • Reviewing any VAT schemes (such as the Flat Rate Scheme) annually to ensure eligibility.

If you know you have made an error on a previous VAT return, it is better to correct it proactively rather than wait for HMRC to find it.

How an Accountant Can Help During a VAT Audit

An accountant experienced in VAT compliance can make a big difference before, during, and after an HMRC audit. They can:

  • Review your VAT records in advance to identify potential issues.

  • Communicate with HMRC on your behalf during the inspection.

  • Explain complex VAT rules and ensure your documentation meets requirements.

  • Help you correct any identified errors quickly and accurately.

  • Prepare appeals or negotiate reduced penalties where necessary.

Professional representation helps ensure that HMRC’s review is handled efficiently and that your rights are protected throughout the process.

How to Avoid Future VAT Problems

Once the audit is complete, HMRC may classify your business as low, medium, or high risk based on their findings. To avoid further inspections, you should:

  • Keep accurate, up-to-date records at all times.

  • Use reliable accounting software integrated with MTD.

  • Schedule regular VAT reviews with your accountant.

  • Stay informed about VAT rule changes affecting your industry.

A consistent record of compliance helps reduce the likelihood of repeat audits and potential fines.

Summary

HMRC has the legal power to audit any VAT-registered business to ensure that VAT returns are accurate. While many checks are routine, audits can also be triggered by irregularities or errors.

If you are selected, HMRC will review your financial records and may visit your business in person. Maintaining accurate records, understanding VAT rules, and working with an accountant will help you manage the process confidently and avoid penalties.

Being proactive, transparent, and well-organised is the best way to ensure your VAT affairs remain compliant and stress-free.