How Do VAT Inspections Work and What Should I Prepare

HMRC carries out VAT inspections to make sure businesses are charging, reclaiming, and reporting VAT correctly. These visits can be routine or triggered by discrepancies, late filings, or unusual VAT claims. While an inspection may sound daunting, being well prepared can make the process straightforward and stress free. This article explains how VAT inspections work, what HMRC typically checks, and how to prepare so your business remains compliant.

Why HMRC conducts VAT inspections

HMRC performs VAT inspections to verify that businesses are paying the correct amount of VAT and following all legal requirements. The main goals are to:

  • Check that VAT returns are accurate.

  • Ensure that VAT has been correctly charged on sales and claimed on purchases.

  • Identify potential errors or fraud.

  • Provide advice or guidance where businesses may have misunderstood the rules.

Inspections are part of HMRC’s routine monitoring of VAT compliance across all industries.

How often VAT inspections happen

There is no fixed schedule for VAT inspections. Some businesses are visited every few years, while others may go much longer without an inspection.

HMRC is more likely to inspect if:

  • You frequently submit late or amended VAT returns.

  • Your VAT refund claims are large or irregular.

  • There is a sudden change in turnover or input tax claimed.

  • Your industry has a higher risk of VAT fraud or errors.

Occasionally, inspections are purely random to help HMRC monitor general compliance.

How you will be notified

If HMRC plans to carry out an inspection, they will usually contact you in advance. You will receive a letter or email explaining:

  • The purpose of the visit.

  • The date and time of the inspection.

  • The period or VAT returns being reviewed.

  • The records or documents you need to provide.

In some cases, HMRC may conduct the inspection remotely, asking you to send digital copies of records through secure channels.

In more serious situations, such as suspected fraud, HMRC can arrive unannounced, though this is rare for standard compliance checks.

What happens during a VAT inspection

A VAT inspection is usually carried out by an HMRC VAT officer, either at your business premises, your accountant’s office, or remotely.

During the visit, the officer will:

  1. Review your VAT records and returns for accuracy.

  2. Check invoices, receipts, and bookkeeping entries.

  3. Compare your sales and purchase data with submitted VAT returns.

  4. Ask questions about how you calculate VAT or manage exemptions.

  5. Look for errors, inconsistencies, or potential underpayments.

The officer may also examine your systems and controls to ensure you are keeping proper records and using Making Tax Digital (MTD) software correctly.

A typical inspection can last from a few hours to a full day, depending on the size and complexity of your business.

What HMRC will want to see

To make the inspection as smooth as possible, you should have the following records ready:

  • Copies of recent VAT returns and workings.

  • Sales invoices and receipts.

  • Purchase invoices and supplier statements.

  • Credit notes issued or received.

  • Bank statements for the VAT periods under review.

  • VAT account and reconciliation records.

  • Proof of exports or zero-rated sales (if applicable).

  • Evidence of partial exemption calculations (if relevant).

  • Copies of any correspondence with HMRC or your accountant regarding VAT.

If you are registered for Making Tax Digital, ensure that your digital records and links between software are up to date and accessible.

Common issues HMRC looks for

During inspections, HMRC often focuses on areas where mistakes are common, such as:

  • Incorrect VAT rates applied to products or services.

  • Input VAT claimed on disallowed items such as entertainment.

  • Errors in partial exemption calculations.

  • Missing or invalid VAT invoices.

  • Failure to account for VAT on self-billing or reverse charge transactions.

  • Unrecorded sales or cash payments.

  • Late adjustments or unclaimed output tax on credit notes.

By reviewing these areas in advance, you can identify and correct any issues before HMRC visits.

How to prepare for a VAT inspection

Preparation is the best way to ensure your VAT inspection goes smoothly. You should:

  1. Review your VAT returns: Check that the figures submitted match your accounting records and that any errors have been corrected.

  2. Organise your paperwork: Keep invoices, receipts, and supporting documentation in order by VAT quarter.

  3. Reconcile your VAT account: Make sure VAT control accounts reconcile with your submitted returns and bank records.

  4. Understand your VAT treatment: Be ready to explain why you have applied certain VAT rates or claimed exemptions.

  5. Check your software compliance: If you use MTD software, ensure your digital links and data are accurate and complete.

  6. Brief your staff: Ensure that anyone who deals with VAT, invoicing, or bookkeeping knows what to expect and can answer basic questions.

If you discover any genuine errors before the inspection, disclose them to HMRC voluntarily. This shows transparency and often reduces the risk of penalties.

What happens after the inspection

Once HMRC has completed the inspection, the officer will explain their findings. There are three possible outcomes:

  1. No issues found: Your records are accurate, and no further action is required.

  2. Minor corrections: The officer identifies small errors and helps you adjust future VAT returns.

  3. Assessment or penalties: If HMRC finds significant errors, they may issue a VAT assessment to recover underpaid tax and apply penalties or interest.

You will receive a written summary of the visit, including any actions you need to take. If you disagree with HMRC’s findings, you can appeal or request an independent review.

How a VAT accountant can help

A VAT accountant can be invaluable before, during, and after an inspection. They can:

  • Review your VAT returns and identify potential risks in advance.

  • Organise and present your records in the format HMRC prefers.

  • Attend the inspection with you and handle technical queries.

  • Negotiate with HMRC if errors or disputes arise.

  • Advise on corrective actions to prevent future issues.

Having professional support demonstrates good faith and can help ensure that HMRC’s visit remains a routine check rather than a stressful experience.

Minimising the risk of future inspections

To reduce the chances of another inspection or penalties, maintain accurate VAT records and submit returns on time. Use accounting software that complies with Making Tax Digital, and review your VAT treatment regularly.

If your business changes, such as expanding into new services or international trade, seek advice from a VAT specialist to ensure your VAT processes remain compliant.

Final thoughts

VAT inspections are a normal part of doing business and are not necessarily a sign of wrongdoing. With good preparation, clear records, and a sound understanding of VAT rules, most inspections are resolved quickly and without issue.

By working with a VAT accountant and reviewing your VAT processes regularly, you can ensure compliance, reduce your tax risk, and make the experience as straightforward as possible.