What Should I Do If I Receive a VAT Compliance Check

Received a VAT compliance check letter? This guide explains exactly what to do, what documents HMRC wants and how to reduce penalties during a VAT review.

Receiving a VAT compliance check letter from HMRC can feel intimidating even for experienced business owners. It usually arrives without warning and many people assume it means they have done something wrong. In my opinion this fear often comes from not understanding what HMRC is actually asking for. A VAT compliance check is not automatically an accusation. It is HMRC’s way of verifying that your VAT returns, records and processes are accurate. If you respond properly and provide the right evidence the process is usually straightforward.

This guide explains exactly what to do if you receive a VAT compliance check. You will learn what the letter means, what HMRC looks for, the documents you must provide, how to prepare, how to reduce penalties, what happens during the check and the common mistakes that make the process harder. I will also include practical examples because compliance checks become much clearer when you see how they work in real situations.

By the end of this guide you will know exactly how to respond confidently and professionally to any VAT compliance enquiry.

What Is a VAT Compliance Check

A VAT compliance check is HMRC’s way of confirming that your business:

  • Is charging VAT correctly

  • Is reclaiming VAT only on eligible expenses

  • Is filing accurate VAT returns

  • Is keeping proper records

  • Is following Making Tax Digital requirements

  • Is paying VAT on time

A compliance check may be:

  • A simple request for documents

  • A full review of several VAT periods

  • A phone call or meeting with your accountant

  • A formal investigation if discrepancies are serious

Most checks begin with a letter asking for information. In my opinion responding quickly and accurately is the best possible start.

Why HMRC May Select You for a VAT Check

HMRC may open a compliance check for several reasons:

  • Your VAT return shows unusual figures

  • Your input VAT seems high compared with your sales

  • You frequently reclaim VAT refunds

  • Your turnover suddenly changes

  • You operate in a high risk industry

  • You have previously filed late returns

  • Your business is new and building turnover

  • HMRC has received third party data

  • You made an error on a return

  • Random selection

The most common triggers are:

  • Frequent VAT repayments

  • Large changes in numbers

  • Mistakes in MTD-linked software

In my opinion most VAT checks arise from automated risk assessments rather than suspicion of wrongdoing.

What You Should Do Immediately When You Receive a VAT Compliance Letter

Stay calm

Receiving the letter does not mean HMRC believes you have done something wrong.

Read the letter carefully

Check:

  • The VAT periods they want to review

  • The deadlines for responding

  • The documents requested

  • Whether they want a call, meeting or written reply

Contact your accountant

Let your accountant handle the response. They know what HMRC expects.

Acknowledge receipt

HMRC appreciates a simple reply confirming you have received the letter and will cooperate.

In my opinion silence causes more problems than the check itself. Always respond.

Information HMRC Usually Asks For

HMRC will ask for documents to confirm the accuracy of your VAT returns. These often include:

  • VAT returns for specific periods

  • Sales invoices

  • Purchase invoices

  • Bank statements

  • Evidence of imports and exports

  • C79 import VAT certificates

  • Till reports or marketplace reports

  • Accounting software records

  • MTD digital links evidence

  • Credit notes

  • Debtors and creditors lists

  • Mileage logs if claiming business travel

  • VAT calculations for adjustments

  • Partial exemption workings if applicable

They may also request:

  • Details of your business activities

  • Explanations of unusual transactions

  • Your VAT accounting method

  • Proof of VAT registration

In my opinion the clearer and more organised your records are the easier the check becomes.

How To Prepare Properly for a VAT Compliance Check

Preparation is essential. HMRC looks for accuracy, consistency and clear evidence.

Gather all requested documents

Make sure they cover the exact periods HMRC listed.

Ensure your bookkeeping is up to date

Missing postings or unreconciled accounts can cause problems.

Check for obvious errors in:

  • VAT codes

  • Duplicate invoices

  • Missing receipts

  • Incorrect VAT rates

  • Imports recorded incorrectly

  • Reverse charge rules

  • Place of supply rules

  • Zero rated items used incorrectly

Produce explanations in plain English

For example:

  • Why VAT was reclaimed

  • Why turnover changed

  • Why refunds increased

  • Why there were losses or unusual adjustments

Provide digital records if using MTD software

HMRC will want:

  • Audit trails

  • VAT worksheets

  • Reports showing how figures were calculated

Ensure VAT invoices are valid

A valid VAT invoice must include:

  • Supplier name

  • Supplier VAT number

  • Date

  • Description

  • Net value

  • VAT rate

  • VAT amount

Invoices missing details may be disallowed.

What Happens During a VAT Compliance Check

HMRC may conduct the check in several ways.

A desk-based review

You send documents and HMRC reviews them remotely.

A phone interview

HMRC may ask questions such as:

  • How you record sales

  • How you record expenses

  • Who prepares VAT returns

  • Whether you use MTD compliant software

  • How you treat imports or exports

A site visit

HMRC visits your premises to review:

  • Records

  • Invoices

  • Stock

  • Till systems

  • VAT processes

Site visits usually occur only when the VAT risk is higher.

What HMRC Is Looking For

During the check HMRC focuses on whether you:

  • Charged the correct VAT rate on sales

  • Reclaimed VAT only on allowable expenses

  • Applied zero rating correctly

  • Recorded imports correctly

  • Applied reverse charge rules correctly

  • Complied with MTD digital links

  • Correctly recorded Amazon or eBay sales

  • Accounted for deposits properly

  • Reversed previous errors

  • Treated credit notes correctly

HMRC is checking your systems, not just individual figures.

In my opinion this is why businesses with clear processes experience fewer issues during checks.

What Happens After HMRC Reviews Your Records

HMRC will either:

Confirm everything is correct

You receive a closure letter and no further action is required.

Request clarification

They ask for explanations or more documents.

Identify errors

They explain the errors and calculate adjustments.

Charge additional VAT

If VAT has been underpaid HMRC will raise an assessment.

Charge penalties and interest

Penalties depend on:

  • Whether the error was careless

  • Whether it was deliberate

  • Whether you disclosed it voluntarily

  • How quickly you cooperated

Interest is always charged on late VAT.

How To Reduce Penalties if HMRC Finds Errors

You can reduce penalties significantly by:

  • Cooperating fully

  • Providing information quickly

  • Correcting mistakes early

  • Making voluntary disclosures

  • Showing you have improved your systems

Penalty bands include:

  • Reasonable care

  • Careless error

  • Deliberate error

  • Deliberate concealment

Showing that you keep good records and have strong processes often moves you into the lowest penalty category.

When You Should Make a Voluntary Disclosure

If you discover an error before HMRC completes the check you should disclose it.

Voluntary disclosure helps:

  • Reduce penalties

  • Show honesty

  • Avoid being treated as deliberate

  • Build trust with HMRC

Examples where disclosure is wise:

  • You find duplicated input VAT

  • You discover sales missing from VAT returns

  • You used the wrong VAT rate

  • You did not apply reverse charge rules

  • You miscalculated export VAT

In my opinion it is always better to disclose than to hope HMRC misses it.

Common VAT Issues HMRC Often Finds

HMRC frequently finds:

  • Incorrect VAT codes

  • Claiming VAT on non business expenses

  • Claiming VAT on cars (not allowed)

  • Missing C79 certificates

  • Incorrect treatment of imports under £135

  • Failing to charge VAT on delivery charges

  • Claiming VAT on entertaining clients

  • Not applying the domestic reverse charge for construction

  • Zero rating goods that should be 20 percent

  • Errors in Amazon and eBay VAT treatment

  • Missing digital links under MTD

Most errors are accidental although they still create adjustments.

What To Do if HMRC Asks for a Meeting

If HMRC requests a meeting:

  • Bring your accountant

  • Prepare explanations

  • Bring sample invoices

  • Stick to facts

  • Answer questions clearly

  • Do not guess if unsure

  • Ask HMRC to repeat unclear questions

  • Remain calm and polite

A meeting does not mean HMRC suspects fraud. It is often used when issues are complex.

What To Do If You Disagree With HMRC

If you disagree with HMRC’s findings you can:

  • Request an internal review

  • Provide additional records

  • Ask HMRC to reconsider evidence

  • Appeal to the First Tier Tribunal

You should only escalate a case when your evidence is strong.

Real World Examples

Example 1: Incorrect VAT rate

A retailer applied 0 percent VAT to products that should be 20 percent.

HMRC assessed additional VAT.
Penalty reduced because the seller cooperated fully.

Example 2: Missing import VAT evidence

A seller claimed VAT on imports without C79 certificates.

HMRC disallowed the VAT.
Seller provided later evidence.
Assessment reduced.

Example 3: Amazon seller underreporting turnover

Sales figures in Amazon reports were higher than bookkeeping software.

HMRC required corrected returns.
No penalty due to honest mistake.

Example 4: Failure to apply reverse charge

A construction contractor treated subcontractors incorrectly.

HMRC recalculated VAT.
Penalty applied but reduced as the business took prompt action.

How To Avoid VAT Compliance Problems in the Future

You can reduce the chance of issues by:

  • Using MTD compliant bookkeeping software

  • Reconciling VAT every quarter

  • Keeping proper digital records

  • Reviewing VAT codes regularly

  • Training staff on VAT rules

  • Keeping evidence for imports and exports

  • Checking marketplace reports each month

  • Reviewing VAT rules for your industry

  • Asking your accountant to perform interim VAT checks

In my opinion businesses that maintain clean and consistent records rarely face serious VAT issues.

Conclusion

A VAT compliance check from HMRC can feel worrying although it is usually a routine review designed to confirm your returns are correct. The key steps are to respond quickly, gather all requested documents, work with your accountant and provide clear and accurate information. If HMRC identifies errors you can reduce penalties significantly by cooperating and correcting mistakes early. Most checks end with no further action when records are strong.

In my opinion every business should prepare for VAT checks as a normal part of compliance. When you maintain good systems, keep digital records and understand basic VAT rules you can handle any VAT enquiry confidently.