Everything You Need to Know About VAT Inspection and Penalties

what triggers a VAT inspection

When you are associated with the business world, you must have track of several businesses that get VAT inspection notifications every year. In the case of business owners who are really busy, this situation is quite alarming and stressful. This is because of the fact that this procedure brings in a lit of significant worry and interruptions. However, the question that arises here is what triggers a VAT inspection. The best is to be prepared for this VAT inspection from HMRC. The earlier you will get prepared the sooner the inspection will be over and there will not be a lot of fuss.

Moreover, for the best preparation, you must have the awareness of the ins and outs of the VAT inspection by HMRC. This will help you further to be prepared for the inspection and for a win-win experience. This comprehensive guide is cautiously compiled to cover the points of discussion like when should you register for VAT, what is VAT inspection, what triggers the inspection, what you should do during the infection, and what are the possible penalties. The penalties could only be possible if there are deliberate mistakes found in your details and records. Let us get delved further into the discussion.


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When Your Business Should Get Registered for VAT?

When the business that you are carrying out is still under the VAT threshold in terms of earnings, you do not allow to charge VAT on selling your products or services to the customers. This does not become mandatory for you to even get your business registered for VAT. However, there are several businesses that opt for voluntary VAT registration and start charging VAT to their customers as well.

On the other hand, once the business breaks the certain limit of the threshold and starts earning more, it becomes a legal requirement for your business to get registered for VAT. One of the major and prominent benefits of getting your business VAT registered is that you can claim the amount sent on VAT while you were purchasing your goods and products for the business.


What is a VAT Inspection – What Triggers a VAT Inspection in the UK?

The main purpose of the VAT inspection from the HMRC is to check on the amount of money that your business is paying and reclaiming for VAT. In previous years the reason for VAT inspection was for audit to check the records randomly. However, now HMRC triggers VAT inspection for the risk of assessment. There are several factors involved in this, they are outlined below for your understanding:

  • Non-payment history of VAT
  • The VAT level of repayment is changed
  • The reported information on tip-offs and other such activities
  • The risk of business sectors
  • The check of credibility
  • The comparison of the VAT return figures and the annual account figures


What to Do While HMRC is Inspecting Your Business?

When a business gets a notification from HMRC for the sake of getting a VAT inspection of the business, this is a tense scenario for the owners normally. However, staying focused and calm during the process will get you out of it successfully. The advisors recommend starting to prepare for it immediately. The forts thing is to review your accounting records. You can even take professional help or you can ask your accountant to review the accounts for this. Any improvements or mistakes should be catered for before the arrival of HMRC officers of inspection.

This is also recommended by professionals to immediately hire an accountant who can help you to prepare and review to rectify the mistakes. The best option is to hire a qualified accountant who can suggest improvements and rectify the possible mistakes in your accounts and other records.


What are the Penalties Charged by HMRC?

Once the inspection is over, there will be a meeting with the business owner to share the findings of the inspecting officer. This is to share the mistakes or any other issues that are identified by these officers during their time of inspection with your business. Normally these offer their findings in a letter that can include other details as well. These could possibly include the following:

  • The fines and penalties for non-payment
  • If there is underpayment or overpayment of VAT is observed, this will be notified in the documents.
  • The VAT account corrections.
  • There can be a procedural suggestion for the correction of your VAT records.

The officers can even charge fines and other penalties if their findings involve some serious issues in your records. Such procedures of HMRC are way more substantially quicker than others. So this requires your focus and pay attention to what HMRC communicates to you about the records and accounts.


The Bottom Line

Now that you have gathered a fair amount of information about what triggers a VAT inspection in the UK, we can bring the discussion towards wrapping up. There is no denying that VAT inspection brings a lot of stress for business owners. However, if you keep calm and focus on the solution, you can change the situation in your favour. For a better experience, you can hire a qualified professional to help you with the preparation for the VAT inspections and rectify the problems before the officers arrive. We hope these few minutes of reading have helped you to develop a better understanding of what triggers a VAT inspection and how it is beneficial in the UK.


Triggering a VAT inspection income becomes tricky when you have a higher chance of making an error in your tax returns. Our professional and detail-oriented professionals can help you! 


Disclaimer: All the information provided in this article on what triggers a VAT inspection in the UK, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.