What Is a VAT Inspection?
A VAT inspection is HMRC's review of your VAT records and returns. Learn what to expect and how to prepare.
Key Takeaways
- HMRC conducts VAT inspections both routinely and in response to risk signals
- Inspectors can visit your premises or conduct the inspection remotely
- You must retain VAT records for a minimum of 6 years
- Always have your accountant or tax adviser present or available during a VAT inspection
What a VAT inspection is
A VAT inspection (or VAT compliance visit) is a review by HMRC of your VAT records to check that your VAT returns are accurate. Inspectors may visit your premises or request records to be sent digitally. Some inspections are routine — selected as part of HMRC's compliance programme regardless of any suspected wrongdoing. Others are triggered by risk signals such as recurrent VAT repayment claims, inconsistencies in returns, or unusually low VAT liabilities for your sector.
What inspectors examine
HMRC VAT officers typically examine: sales invoices and whether output VAT has been correctly charged; purchase invoices and whether input VAT claims are valid (the invoice must be a valid VAT invoice in your name); whether VAT has been charged on all taxable supplies; the treatment of any exempt or partially exempt supplies; and whether the correct VAT rate has been applied to each category of supply. They will also check that your MTD digital records are properly maintained.
Record retention requirements
You must retain all VAT records for a minimum of 6 years — or 10 years if you use the VAT MOSS (Mini One Stop Shop) scheme for digital services. Records must be kept in a form that HMRC can access — digital records under Making Tax Digital must be kept in a compatible format. Failure to produce records during an inspection can result in assessments and penalties even if your VAT has been correctly paid.
How to prepare
Good preparation makes a VAT inspection straightforward. Ensure your VAT records are organised and accessible — sales and purchase invoices filed by period, digital records MTD-compliant, and your VAT account reconciled to your returns. Review any areas where you have made judgement calls on VAT treatment and have documentation supporting your position. Alert your accountant when you receive a notice of inspection — they should attend or be available throughout.
If errors are found
If the inspector finds errors in your VAT returns, the outcome depends on the nature of the error. Small errors (below £10,000 or 1% of turnover, whichever is greater) can be corrected on your next VAT return. Larger errors must be disclosed to HMRC separately. HMRC will assess any additional VAT due plus interest. If errors were careless, penalties of 15-30% of the additional VAT may be charged; if deliberate, penalties up to 100% apply. Prompt cooperation and voluntary disclosure reduces penalties.