HMRC VAT Inspection: What to Expect and How to Prepare

Getting a letter or call from HMRC about a VAT inspection can be a worrying moment for any business owner – especially if it’s your first time dealing with one. But knowing what to expect and how to prepare can make the whole process much smoother.

In this article, we’ll explain what a VAT inspection involves, how likely it is, how long it takes, and what you can do to get ready – plus how to reduce the risk of future problems.

What is a VAT inspection?

A VAT inspection (or compliance check) is when HMRC reviews your VAT returns and records to make sure you’ve been reporting everything accurately. It might be a routine check, or triggered by something in your VAT returns that’s raised a red flag.

Inspections can take a few different forms:

• Desk-based – HMRC asks you to send information online or by post.
  
  
• In-person – An officer visits your premises (usually with notice, though not always).
  
  
• Remote – Increasingly done over the phone or video, especially for smaller businesses.

How likely is a VAT inspection?

HMRC doesn’t inspect everyone – they usually focus on businesses they see as higher risk. Triggers can include:

• Late or missing VAT returns or payments
  
  
• Large or unusual VAT reclaims
  
  
• Sudden changes in your turnover or VAT liability
  
  
• Mismatches between your VAT return and other tax filings (e.g. your corporation tax return or CIS)
  
  
• Operating in industries where errors are more common (e.g. construction, hospitality, retail)

How long does a VAT inspection take?

It varies. A basic check might be over in a few days or weeks. More complex cases can take months, especially if there are follow-up queries or multiple VAT periods involved.

If HMRC visits your premises, the visit itself might last a few hours or a full day, depending on what they’re reviewing.

What can HMRC inspect?

They’ll want to see all records that support your VAT returns, such as:

• Invoices (sales and purchases)
  
  
• VAT return calculations
  
  
• Bank statements
  
  
• Bookkeeping records (e.g. from Xero, QuickBooks or Sage)
  
  
• Till receipts, stock records, and delivery notes (if relevant)
  
  
• Contracts and agreements with clients and suppliers
  
  
• If you use cloud accounting software, HMRC may request access to digital reports.

What are the possible outcomes?

After the inspection, HMRC will either confirm that they’re satisfied or issue a VAT assessment. That could involve:

• Paying additional VAT – if you’ve underpaid.
  
  
• Interest – currently 7.75% (as of August 2025).
  
  
• Penalties – ranging from 0% to 100% of the VAT due, depending on whether the error was careless, deliberate, or concealed.

Example: A business accidentally reclaims VAT on insurance costs (which are exempt). HMRC finds the same mistake repeated over four quarters and issues an assessment for £2,400, plus interest and a 10% penalty.

How to prepare for a VAT inspection

If you’ve been contacted by HMRC, here are some steps to take:

• Organise your records – Make sure your VAT returns match your bookkeeping. Have clear documentation for all income and expenses.
  
  
• Review recent returns – Check for any inconsistencies, such as duplicated invoices, incorrect VAT codes, or items where VAT shouldn’t have been claimed.
  
  
• Contact your accountant – Let us know straight away. We can help you prepare, review your records, and even speak to HMRC on your behalf.
  
  
• Be open and cooperative – Being transparent helps. Trying to delay or obscure things often results in tougher penalties.

How to reduce your chances of future inspections

• Keep VAT records up to date and accurate
  
  
• File VAT returns and payments on time
  
  
• Use proper VAT codes in your software
  
  
• Be careful with zero-rated, exempt, or reverse charge transactions
  
  
• Speak to your accountant if anything seems unclear

Need help?

If you’ve had a letter from HMRC about a VAT inspection – or just want peace of mind that your VAT records are in good shape – we’re here to help.

At Navigate Accountancy, we work with small and medium-sized businesses across a wide range of industries. We’ll review your VAT returns, help you get organised, and handle HMRC communications on your behalf so you can stay focused on running your business.

Book a call at www.navigateaccountancy.com/book-a-call   or phone us on 01709 589 439.