VAT Investigation
What is a VAT inspection?
A VAT inspection involves HMRC contacting or visiting your business in order to
inspect its VAT records. This inspection is a series of compliance checks, and is
designed to ensure that the business is paying the correct amount of VAT.
Usually, a business will be contacted in advance of a visit from HMRC to arrange
a mutually convenient time to carry out the inspection; however, in some cases
they may also visit without warning or appointment.
What triggers a VAT inspection?
It is impossible to predict exactly what may trigger a VAT inspection or more
detailed investigation – they can occur seemingly at random but will likely be
linked to one of the following triggers:
Your business failed a “credibility check” carried out on one or more of
your VAT returnsYour business operates in a higher-risk sector (according to HMRC)
HMRC may have received suspicious information relating to your business
and its VAT returns.HMRC noted abnormally large increases in VAT claims, or VAT claims
where there previously were none. A first VAT return will almost always
trigger an enquiry if it shows a net repayment.Your compliance history includes late or non-payments of VAT, penalties,
or other anomalies.HMRC have several highly efficient systems, including ‘Connect’ software,
capable of tracing small discrepancies in all kinds of tax returns, including
VAT.
How far back can HMRC investigate VAT?
HMRC can only inspect records going back 4 years unless the inspection
identifies fraudulent activity. If fraud is suspected, HMRC can inspect records
going back 20 years.
How long does a VAT inspection take?
Depending on the size and complexity of your business, a visit to your premises to inspect your VAT records would normally vary between 1 and 4 days. At the
end of the visit, the inspector may have outstanding queries and request further
information from you. You will normally be given up to 30 days to provide this
information.
What happens if errors are discovered on a VAT inspection?
Depending on the size and nature of the error, you will either be asked to make
an adjustment on a subsequent VAT return, or you will be issued with an
assessment. If you are issued with an assessment, you will also have to pay
interest and penalties.
What happens at the end of the VAT inspection?
Once the VAT inspection has been concluded you will receive a letter from HMRC
covering:
what you must do, if anything, to improve your VAT record keeping
any corrections you must make to your VAT account
if you overpay or underpay your VAT
any penalty you must pay.
What are the penalties for VAT?
The amount of the surcharge will depend on the VAT outstanding, and the
number of defaults made within the surcharge period.
HMRC can charge you a penalty of up to:
100% of any tax under-stated or over-claimed if you send an inaccurate
return30% of an assessment if HMRC sends you one that’s too low and you do
not tell them it’s wrong within 30 days£400 if you submit a paper VAT Return (only certain people are allowed to
submit a paper VAT Return - find out if you meet the conditions)There’s no penalty for a late nil return (where you have nothing to
declare).
Subsequent late or non-submission of VAT returns and/or payments result in
penalties starting at 2% and rising to 15%.
What happens if I disagree with an assessment and/or penalty issued
by HMRC?
You can write to HMRC within 30 days to request a statutory review or submit an
appeal to the First-tier Tribunal.
In Conclusion
At Cheylesmore Chartered Accountants, Coventry, our professionals ensure that
your VAT returns are calculated accurately and in a timely manner. We do this through timely preparations of the return and multiple levels of internal reviews before sending the return for your sign off. In addition to this our team is in constant contact with HMRC and would ensure any issues arising on your VAT Return are dealt with swiftly.
Give us a call and schedule a meeting to discuss becoming part of the
Cheylesmore Client Family.