What Should I Do If I Receive a VAT Compliance Check

As a chartered accountant running my own firm, I have supported many businesses through VAT compliance checks. The reaction is almost always the same at first, worry, stress, and the fear that something must be wrong. In reality, VAT compliance checks are a routine part of how HMRC monitor the VAT system. They are not automatically accusations of wrongdoing, and receiving one does not mean you have failed in your VAT obligations.

That said, how you respond to a VAT compliance check matters a great deal. A calm, organised, and informed response can make the difference between a straightforward review and a long, uncomfortable investigation. In this article, I want to explain exactly what you should do if you receive a VAT compliance check, what HMRC are usually looking for, how to prepare your response, and how to protect your business throughout the process.

This is written exactly as I advise my own clients, practical, realistic, and grounded in how HMRC actually operate in the real world.

First things first, do not panic

The most important advice I can give is this, do not panic.

HMRC carry out VAT compliance checks routinely. Many are random. Others are triggered by patterns such as repayment claims or changes in turnover. A compliance check is not the same as an accusation of fraud or deliberate wrongdoing.

Your goal at this stage is not to defend yourself emotionally, but to respond professionally and methodically.

Read the HMRC letter carefully

Before doing anything else, read the HMRC letter in full.

The letter will usually explain:

• That HMRC are carrying out a VAT compliance check

• Which VAT periods are being reviewed

• Whether the check is desk based or involves a visit

• What information HMRC are requesting

• Deadlines for responding

• Contact details for the HMRC officer

Understanding the scope of the check is critical. Do not assume HMRC are looking at everything unless the letter explicitly says so.

Identify what type of VAT compliance check it is

VAT compliance checks come in several forms.

The most common are:

• Desk based checks conducted by letter or email

• Aspect enquiries focusing on a specific area such as zero rating

• Repayment checks following VAT refund claims

• Full VAT inspections covering multiple periods

• Remote checks using digital records

• On site visits to your premises

Knowing which type you are dealing with helps you prepare appropriately.

Check the deadlines and diarise them

HMRC letters always include deadlines.

You should:

• Note the response deadline immediately

• Add reminders to your calendar

• Allow time to gather information properly

Missing deadlines or responding late creates a poor first impression and can escalate the situation unnecessarily.

If you need more time, it is usually possible to ask, but this should be done early and politely.

Do not ignore the compliance check

Ignoring HMRC is one of the worst things you can do.

If you do not respond:

• HMRC may issue estimated VAT assessments

• Penalties and interest can follow

• The check may escalate

• HMRC may assume non cooperation

Even if you are unsure how to respond, acknowledge the letter and engage with the process.

Consider appointing an accountant or VAT adviser

If you are not already working with an accountant, this is often the point where professional support becomes invaluable.

An experienced VAT adviser can:

• Deal with HMRC on your behalf

• Review your VAT returns objectively

• Identify risk areas early

• Frame responses in the right language

• Reduce stress and disruption

In my experience, involving an adviser early leads to far better outcomes than bringing one in after problems have escalated.

Authorise your adviser to speak to HMRC

If you do appoint an adviser, you will need to authorise them to act for you.

This allows HMRC to:

• Communicate directly with your adviser

• Request information through them

• Discuss technical VAT issues professionally

Once authorised, it is usually best to let the adviser handle communications rather than responding personally.

Understand what HMRC are usually looking for

While every check is different, HMRC tend to focus on certain recurring areas.

Common focus points include:

• Output VAT calculations

• VAT rates applied to sales

• Zero rated and exempt supplies

• Input VAT claims

• Entertainment and subsistence

• Director expenses

• Vehicle related VAT

• Disbursements and recharges

• Partial exemption

• Flat Rate Scheme usage

• Postponed VAT accounting

• Consistency between VAT returns and accounts

Knowing this helps you prepare your records intelligently rather than reactively.

Gather the information HMRC have requested

HMRC will usually ask for specific documents.

These may include:

• VAT returns for certain periods

• Sales invoices

• Purchase invoices

• Bank statements

• Accounting records

• Contracts or agreements

• VAT workings

• Postponed VAT accounting statements

• Partial exemption calculations

Provide exactly what is requested, no more and no less.

Over sharing can open up new lines of enquiry.

Review your VAT returns before sending anything

Before sending information to HMRC, review it yourself or with your adviser.

This review should look at:

• Whether VAT returns match accounting records

• Whether VAT rates have been applied correctly

• Whether input VAT claims are supported by valid invoices

• Whether any errors are apparent

• Whether explanations are needed for unusual figures

Finding issues yourself is far better than having HMRC find them first.

Be honest about any mistakes

If you identify genuine errors, do not try to hide them.

HMRC treat mistakes very differently depending on behaviour.

Where errors are:

• Careless

• Acknowledged early

• Corrected voluntarily

Penalties are usually much lower.

Trying to conceal mistakes almost always makes the situation worse.

Prepare clear explanations for unusual VAT positions

If your VAT returns include unusual features, be ready to explain them clearly.

Examples include:

• Regular VAT repayments

• Large input VAT claims

• Sudden changes in turnover

• New business activities

• One off large purchases

• Changes in VAT schemes

HMRC are far more comfortable when figures make sense and are well explained.

Keep communication professional and factual

All communication with HMRC should be:

• Polite

• Professional

• Factual

• Clear

• Timely

Avoid emotional language, defensive responses, or speculation.

HMRC officers are trained to assess facts, not feelings.

Answer the questions asked, not every possible question

This is an important discipline.

When HMRC ask a question:

• Answer that question directly

• Provide supporting evidence

• Do not volunteer unrelated information

Providing unnecessary detail can widen the scope of the check.

Keep copies of everything you send

You should keep copies of:

• All documents sent to HMRC

• All correspondence

• Notes of phone calls

• Dates and times of communication

This creates an audit trail and protects you if questions arise later.

Prepare for a visit if one is planned

If HMRC plan to visit your premises, preparation matters.

Before the visit:

• Ensure records are organised and accessible

• Ensure key staff are available

• Agree the scope of the visit

• Ensure your adviser is present if possible

You are entitled to have an adviser attend meetings with HMRC.

During an HMRC visit, stay in control

During a visit:

• Answer questions honestly

• Take time before answering complex questions

• Refer technical issues to your adviser

• Do not speculate

• Do not guess figures

If you do not know an answer, it is perfectly acceptable to say you will come back with it.

Understand your rights during a compliance check

You have rights during a VAT compliance check.

These include the right to:

• Understand why information is being requested

• Ask for clarification

• Request reasonable time to respond

• Be treated fairly and professionally

• Appeal assessments and penalties

• Have representation

Knowing your rights helps you stay calm and confident.

What happens if HMRC find errors

If HMRC identify errors, several outcomes are possible.

These include:

• No further action

• Agreement to adjust VAT returns

• Assessments for underpaid VAT

• Interest charges

• Penalties depending on behaviour

Not all errors lead to penalties, particularly where they are small and corrected promptly.

Penalties depend on behaviour

HMRC penalties depend heavily on behaviour.

They look at whether errors were:

• Careless

• Deliberate

• Concealed

They also consider:

• Whether you cooperated

• Whether you disclosed errors voluntarily

• How quickly issues were resolved

Good behaviour genuinely matters.

Time to Pay arrangements if VAT is due

If a compliance check results in VAT being payable and you cannot pay immediately, you may be able to arrange a Time to Pay agreement.

Early discussion with HMRC is key.

Time to Pay can:

• Spread the cost

• Reduce enforcement action

• Allow the business to continue trading

Interest still applies, but penalties may be reduced.

Do not assume HMRC are always right

HMRC officers are human and can make mistakes.

If you disagree with HMRC conclusions:

• Ask for explanations

• Provide evidence

• Challenge incorrect assumptions

• Appeal formally if necessary

A professional adviser can be invaluable at this stage.

What to do after the compliance check ends

Once the check is complete, do not just move on.

You should:

• Review any findings

• Correct systems and processes

• Update VAT procedures

• Train staff if needed

• Schedule regular VAT reviews

The goal is to reduce the risk of future checks.

Turn the experience into an improvement opportunity

In my experience, the businesses that benefit most from compliance checks are those that use them as a learning opportunity.

A VAT compliance check often highlights:

• Weak bookkeeping

• Poor VAT understanding

• Lack of internal controls

• Over reliance on assumptions

Fixing these issues strengthens the business long term.

Common mistakes I see during VAT compliance checks

From real world experience, the most common mistakes are:

• Panicking and overreacting

• Ignoring deadlines

• Providing too much information

• Trying to justify incorrect VAT treatment

• Failing to involve an adviser

• Treating HMRC as adversaries rather than regulators

Avoiding these mistakes makes the process far smoother.

Final thoughts from real world experience

Receiving a VAT compliance check is unsettling, but it does not have to be a disaster. In most cases, it is a routine review that can be handled calmly and professionally with the right preparation.

The key is to respond, not react. Read the letter carefully, understand what HMRC are asking, gather accurate information, and seek advice where needed. Cooperation, honesty, and organisation go a long way.

If there is one takeaway, it is this. VAT compliance checks are rarely about catching people out. They are about ensuring the system works. Businesses that understand that, and prepare accordingly, usually come through the process with minimal disruption and a stronger VAT position than before.