You received a VAT inspection, what to expect? It’s not uncommon for business owners to receive a letter from HMRC enquiring about their VAT returns. But what should you do if you get one? In this blog post, we will give you some tips on how to deal with a VAT inspection and what to do if you are asked to provide more information.
Most SMEs only receive visits from HMRC once every 4-10 years. Although it’s impossible to say with certainty what may set off a VAT inspection, they are often connected to one of the following factors:
- According to HMRC, your business operates in a higher-risk sector
- Inconsistency. If HMRC notice unusually large increases and repayments in VAT claims they may require more information
- Any penalties or other irregularities in your compliance history, such as late or non-payments of VAT
HMRC have four years from the end of the relevant tax year to inspect records and make assessments. This is known as the ‘statutory period of limitation‘. The only exception to this rule is in the case where an inspection reveals fraudulent activity, in which case the assessment can go back 20 years. This is why it’s important for businesses to keep accurate records for at least four years, and preferable longer in case of an HMRC investigation.
What to do when HMRC have opened an enquiry into your VAT?
- Look for professional advice sooner than later. Doing things correctly from the start will save you more time and money in the long run. If you require help, we can assist you with this.
- It may be easier to say than do but try your best not to panic. These things happen.
- Provide access to your VAT records, copies of your filed returns, supporting calculations, and invoices. Explain to the inspect how the business operates and how the information is recorded. It is much easier to provide this with meticulous record keeping.
- Don’t be hesitant to ask for more time. Don’t be concerned if you can’t instantly respond to HMRC’s queries during the visit. Given the intricacy of VAT, it’s sensible to request for questions to be put in writing so you can respond to them in a timely manner. Providing a correct response is preferable to assuming on the spot. You’ll also have something to refer to in the future.
- Honesty is the best policy. Mistakes happen. If you discover an error when preparing for a VAT visit, explain how the error arose at the start of the visit to the inspector. HMRC applies a stricter penalty system where a business has intentionally withheld information. However, follow up as soon as possible to notify the inspector that you have received their query and are gathering the necessary information. Failure to reply in a timely manner may result in further penalties from HMRC as they could view this as a case of non-compliance.
- If not already, move your business to online accounting. It’s better to keep your records securely online rather than relying on paper which also makes it a lot easier to retrieve them whenever required. One common accounting software that you can consider using is Xero.
But the best tip is to learn from the experience regardless of the outcome. If you need any further assistance, feel free to reach out to us via the contact us page. We also have another article where we go in-depth on what to expect when you’ve been contacted about a VAT inspection and what mistakes to avoid when sending over your documents, which you can read by clicking the link below.