VAT Audit: A Practical Guide for UK Businesses

·       Errors in output VAT

·       Poor treatment of exempt supplies

·       Mistakes involving imports or exports

·       Differences between accounting records and VAT returns

Finding an error internally gives a business an opportunity to investigate what happened and determine whether a correction is necessary.

A VAT review can also highlight weaknesses in record keeping. If invoices are difficult to locate or transactions are not properly categorised, the problem may extend beyond one VAT return.

What Does HMRC Check During a VAT Inspection?

HMRC can visit a business to inspect VAT records and check whether the correct amount of VAT is being paid or reclaimed. These visits are known as compliance checks.

HMRC says it will usually contact a business to arrange a visit and normally gives seven days' notice. In certain circumstances, however, HMRC can visit without an appointment. The frequency of VAT checks can depend on factors such as the size and complexity of the business and whether previous VAT returns were submitted late or incorrectly.

During a visit, HMRC may review statutory records and relevant business information. The purpose is to establish the correct VAT position rather than simply examine whether individual invoices have been filed.

Which VAT Records Should a Business Keep?

Good record keeping is one of the most important parts of VAT compliance.

HMRC states that VAT-registered businesses must keep records including purchases and sales, invoices issued and received, credit and debit notes and other relevant business records. Some VAT records must also be kept digitally where Making Tax Digital requirements apply.

Businesses should have a system that makes it easy to trace transactions from the original documentation through to the VAT return.

Important records may include:

·       VAT invoices

·       Purchase invoices

·       Sales invoices

·       Credit notes

·       Debit notes

·       Bank statements

·       Cash records

·       VAT account

·       Import and export documentation