Why would your business be singled out for a VAT inspection by HMRC, and what are the steps you can take to avoid one?

How to avoid a VAT inspection

Any business can be the subject of a VAT inspection by HMRC. However if you consistently fail to submit your VAT Returns on time, you work in an industry which HMRC considers ‘high risk’, your trading patterns have changed, you have late or non-paid penalties or there is a sudden drop in the amount of tax you declare, HMRC may just give you a call.

So what can you do to avoid a VAT inspection? And are there any industries or businesses that are more likely to be called to account? Here are a few pointers to help you avoid inspection, and help you deal with it should one arise.  

Why would my VAT Return be investigated?

For all the reasons given above, and many more. HMRC doesn’t need an excuse to investigate your VAT affairs; their checks can be random, they might be tipped off by a third party or your VAT Return might just look a little different from last year. It can be bad luck, but it can also be because your VAT Returns have not been filed accurately, or on time.

How could my small business be considered high risk?

HMRC can consider any business ‘high risk’ where fraud is considered likely, such as those who frequently receive payment in cash. Sometimes, fast growing small businesses can also attract attention because HMRC suspects their accounts might not have kept up with their growth. Small businesses are also more likely to be handling their own VAT Return, so errors are common. Mistakes on payroll can also set off HMRC investigations, so it is wise to check and recheck your figures before you file your VAT Return.

What if I have a VAT inspection?

If HMRC decides to investigate your VAT affairs, they will contact you to arrange a time and date. If you are signed up to Numberworx, we will thoroughly check all your calculations and make sure your VAT Returns, bank statements, annual accounts and purchase and sales invoices are ready for inspection.

Why is it so important to file a VAT Return accurately and on time?

Filing late or inaccurate VAT Returns will draw unnecessary attention to your business accounts. The taxman might assume that if you can’t file your VAT return correctly you could be making errors on the return itself, or that you have something to hide. If you file accurate and timely VAT Returns, it’s far less likely you will be investigated by HMRC.


What’s the link between Social Media and VAT Returns?

Your customers may not be the only people reading your social media posts. HMRC uses powerful software that analyses data in the public domain and on the internet. This includes social media, so businesses who boast about sales on Facebook and then submit a poor performance VAT Return are just asking to be investigated!