Every VAT registered business can face an HMRC VAT compliance check, either by letter or by a visit to look at records. VAT accounts for 20% of the UK tax gap on HMRC’s latest estimates, so it gets plenty of attention. Tax investigation insurance pays your accountant’s fees for dealing with a check. Solar Protect cover includes VAT compliance checks and pays up to £100,000 with no excess.
Why does HMRC check VAT returns?
HMRC’s Measuring tax gaps 2026 edition puts the VAT gap at 6.6% of VAT liabilities for 2024 to 2025, a fifth of the total tax gap. Checks can be risk based, for example after a large repayment claim, a change in your figures or a mismatch with third party data, or part of wider projects. The figures and sources are on our HMRC enquiry and investigation statistics page.
What does a VAT compliance check involve?
HMRC may write asking for records, or arrange a visit. Its factsheet CC/FS3 says that for a visit by agreement or advance notice it will usually give at least 7 days’ notice, although unannounced inspections are possible. Our guide to the HMRC VAT compliance check explains the process. Common areas include:
- input VAT claimed on purchases, and whether you hold valid invoices;
- the VAT rate charged on sales, especially zero rated and exempt supplies;
- special schemes such as the Flat Rate Scheme, cash accounting or the Margin Scheme;
- business and private use, for example on cars, vans and fuel;
- the domestic reverse charge in construction;
- digital records and Making Tax Digital for VAT.
What penalties can apply?
Errors found in a check can lead to an inaccuracy penalty: up to 30% of the extra VAT for a careless error, 70% for a deliberate one and 100% where it was deliberate and concealed, with reductions for disclosure. Late returns and payments have their own VAT penalty points system. See HMRC penalties for tax return errors.
What does tax investigation insurance pay for?
It pays your accountant’s fees for dealing with HMRC, including preparing for a visit, answering questions and negotiating any assessment, up to the policy limit. It does not pay VAT, interest or penalties, and it will not cover a check that started before your policy. Read what tax investigation insurance does not cover.
Read how our cover works or get a quote today.
Related guides: correcting VAT errors, tax investigation insurance for hospitality businesses, electronic sales suppression.
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 7 October 2026. This guide is general information, not personalised tax advice. Cover is subject to the policy terms, conditions and exclusions.