HMRC VAT Investigation & VAT Inspections

If you're under VAT investigation or HMRC is planning to inspect your business premises (or has already done so), our VAT Dispute Experts can help. We’re here to guide you through the complexities of the VAT investigation process and minimise any potential penalties.

Expert Guidance and Advice

We offer clear, practical advice tailored to your situation, helping you understand and navigate the VAT investigation process effectively.

Thorough Record Review

We thoroughly examine your VAT records to identify and correct potential issues before HMRC does, ensuring your documentation is accurate.

Representation and Negotiation

We manage all communication with HMRC, representing your interests and aiming to resolve issues efficiently while minimising penalties.

What is a VAT Investigation?

A VAT investigation is an enquiry by HMRC to ensure that a business is correctly collecting, reporting, and paying VAT. If irregularities are identified, HMRC will work with taxpayers and/or their advisers to quantify the correct VAT position and consider whether any financial penalties would be appropriate.

What is a VAT Inspection?

A VAT inspection involves HMRC reaching out to or visiting the business to examine VAT records and address any questions that arise from their review. Typically, HMRC will notify businesses of a planned visit in advance. However, they also conduct unannounced visits when they suspect fraudulent activity, using the element of surprise to their advantage.

What triggers a VAT investigation?

There are several factors that could trigger a VAT investigation:

Your business has a record of late VAT payments, non-payments, or repeated errors in VAT returns.
Your business is within a sector that is considered more prone to VAT irregularities, such as hospitality, construction companies, and hair/beauty salons.
There is a sudden spike in your VAT claims or make a large claim after periods without any previously, which can raise suspicions.
HMRC compares submitted VAT returns against industry averages, which shows your business’s VAT figures significantly differ from the expected benchmarks.
HMRC conducts a random VAT compliance check to ensure general adherence to tax regulations.

If HMRC finds significant errors during an initial VAT inspection, it may escalate the process into a full investigation. In such cases, HMRC could broaden the scope to include other taxes beyond VAT, such as income tax or corporation tax, if there are concerns about overall tax compliance.

What Are the Possible Outcomes of a VAT Investigation?

The outcome of a VAT investigation can vary depending on what HMRC discovers during their review. If everything is in order, HMRC may conclude the investigation without any further action. This means that your VAT returns and records are deemed accurate and compliant with regulations.

In some cases, HMRC may reassess the amount of VAT you owe. If they find errors or discrepancies in your records, they could adjust your VAT liability accordingly. This reassessment could lead to additional VAT payments or corrections to previous submissions.

Penalties and fines are another possible outcome if HMRC identifies errors, particularly those deemed to be deliberate or negligent. In more severe cases, particularly if HMRC suspects VAT fraud, there is the potential for prosecution. This could lead to criminal charges and significant legal consequences if HMRC believes there has been deliberate wrongdoing.

What Are VAT Penalties?

When HMRC identifies irregularities during a VAT investigation, they may impose financial penalties. The amount of the penalty depends on several factors, including whether the irregularity was intentional or accidental.

Penalties are calculated as a percentage of the tax understatement. The level of the penalty can vary based on whether the business voluntarily disclosed the issue before HMRC contacted them, and the degree of cooperation provided during the investigation.

Historically, failing to submit VAT returns or pay VAT on time, even if the amounts were correct, resulted in default surcharges. These surcharges were imposed after the first instance of lateness and increased in proportion to the VAT outstanding and the number of defaults.

However, since January 1, 2023, the penalty regime has shifted to a new points-based system. This new system replaces the previous default surcharge regime and introduces different criteria for calculating and imposing penalties.

How Can We Help?

If you choose to seek specialist advice from Tax Dispute Experts, we will:

Handle the VAT Investigation: Manage the entire HMRC process to resolve the matter as quickly as possible, minimising disruption to your business.
Review Your VAT Affairs: Conduct a comprehensive review of your VAT records to identify any issues, giving you an initial assessment of potential exposure.
Make Disclosures and Representations: Where necessary, communicate with HMRC to prevent unnecessary tax, interest, or penalties.
Negotiate Payment Arrangements: If required, arrange a manageable payment plan based on your business’s needs and circumstances.