Receiving notice of an impending HMRC VAT compliance check can be daunting. However, with the right professional advice, sufficient preparation and careful handling of the process, you can minimise the disruption caused to your commercial operations and secure the most lenient penalty for any errors uncovered during the course of the investigation.
We are a firm of solicitors and barristers with particular expertise in HMRC matters, including VAT compliance checks. Our advice is commercially focused and straightforward. We will not confuse you with technical legal jargon but instead ensure you are fully appraised of the relevant procedure and have strategies in place to deal with all potential outcomes.
Why does HMRC carry out VAT Compliance Checks?
HMRC have various motivations for conducting a VAT compliance check. They include ensuring businesses are paying the correct amount of VAT, discouraging tax evasion and checking that the tax system is operating properly.
What triggers a VAT Compliance Check?
The factors that might trigger an HMRC VAT compliance check include a business making a large VAT refund claim when its turnover is low, or a business with a high turnover declaring a small amount of VAT.
Will you receive notice of a VAT Compliance Check?
You will usually receive at least 7 days’ notice of a VAT compliance check, although HMRC officers can visit your business premises unannounced at any time. Sometimes, HMRC officers might telephone you to discuss your VAT affairs.
You can ask HMRC to delay the investigation if the proposed time is inconvenient. HMRC are usually amenable to such requests, within reason and if their diary allows. However, trying to delay for more than a few weeks can raise suspicion and send the wrong signals to HMRC. Speak to us if you are unsure. We will review the facts of your situation and advise on the best course of action.
What happens during a VAT Compliance Check?
During an HMRC VAT compliance check, HMRC officers will inspect your VAT records to confirm that they are accurate, and that you are paying the correct amount of tax. In addition, the officers might examine your business premises, interview you and your employees or inspect your stock.
The exact format of a VAT compliance check depends on the business being investigated and may change during the course of the inspection. If errors are detected, the officers may extend the remits and depth of their search.
VAT Compliance Checklist
Prevention is better than cure when it comes to tax affairs. VAT is an incredibly complex tax, and knowing what to charge, how to record it and accurately account for it, can be a challenge. Putting in place a comprehensive VAT compliance checklist can help you tackle your VAT recording obligations, reduce the chance of being selected to undergo an inspection in the first place and put you in the best possible position to deal with an inspection should one be carried out.
Unfortunately, there is no ‘one size fits all’ in terms of VAT compliance checklists. The recommended steps depend entirely on various factors specific to your business, including its size and nature. Having said that, there are a few measures that most businesses would benefit from incorporating into their VAT compliance checklist. They include the following:
- Implement VAT compliance processes.
Keeping meticulous financial records and reconciling them with your VAT returns will ensure your VAT accounting is as accurate as possible. Some businesses might benefit from using specialist VAT accounting software, which significantly reduces the burden of VAT compliance. During a VAT compliance check, HMRC officers will check not just your transactions, but your processes as well, so being able to demonstrate your commitment to accurate reporting is essential.
- Submit your VAT returns on time.
Being consistently late with your VAT returns can be a factor in your selection for a VAT compliance check, so ensuring the timely filing of returns is crucial. Plus, you may face a surcharge or penalty if you submit your return, or pay the VAT due, late. Setting up an automated reminder system is a straightforward way of keeping on top of your VAT returns.
- Charge the correct VAT rate.
There are three VAT rates: standard rate, reduced rate and zero-rated, and the appropriate one depends on the type of goods or services you offer. Ensuring you select the correct rate is crucial to calculating VAT correctly.
- Run spot checks.
Incorporating spot checks into your VAT compliance checklist can ensure you are prepared for a VAT inspection when one comes along. By periodically performing a comprehensive VAT compliance check on your business, you will detect any issues or non-compliance, and have an opportunity to remedy problems before they come to HMRC’s attention.
How can we help with your HMRC VAT Compliance Check?
We have vast experience in HMRC related matters, including helping clients facing a VAT compliance check. We will ensure you are fully prepared for the inspection and guide you through the process, liaising with HMRC on your behalf where required. If the VAT compliance check uncovers carelessness or errors on your part, we will use our expertise and experience to secure the most lenient penalty possible in the circumstances.