VAT Audit: A Practical Guide for UK Businesses

·       Records supporting VAT adjustments

HMRC generally requires VAT records to be retained for six years, although specific rules and exceptions can apply.

VAT Audit and Common Errors

A VAT audit often reveals mistakes that developed gradually rather than through one major accounting error.

Incorrect VAT treatment

Different goods and services can have different VAT treatments. A business needs to understand whether a transaction is standard-rated, reduced-rated, zero-rated or exempt.

Missing evidence

A business may believe that a transaction qualifies for a particular VAT treatment but lack the documentation needed to support that position.

Input VAT errors

Input VAT should only be reclaimed where the relevant conditions are met. Businesses should keep the appropriate evidence for purchases and expenses.

Export mistakes

Exports can involve specific VAT rules and evidence requirements. Businesses involved in international trade should pay particular attention to documentation.

For businesses selling goods overseas, our guide VAT on Exports: Zero-Rating and Evidence Requirements for UK Businesses provides additional information about the evidence that can be important when applying zero-rating.

How to Prepare for a VAT Audit

Preparation should start well before an HMRC visit or formal enquiry.

Review VAT returns

Compare recent VAT returns with the underlying accounting records. Look for unusual changes, large adjustments or figures that do not reconcile.

Check invoices

Make sure sales and purchase invoices contain the information needed to support the VAT treatment applied.

Review expenses

Check whether VAT has been reclaimed correctly on business expenses and whether the supporting documentation is available.

Examine unusual transactions

Large purchases, asset sales, imports, exports and unusual adjustments deserve particular attention because they may require different VAT treatment.

Reconcile your VAT account