A VAT compliance check is HMRC inspecting your VAT records to confirm you have paid or reclaimed the right amount of VAT. HMRC normally gives seven days’ notice before a visit, and in some circumstances can inspect without any notice at all. Any VAT found to be underpaid, plus interest and penalties, is yours to settle. The cost of your accountant handling the check is also yours, and that is the bill tax fee protection insurance is designed to meet.

VAT is one of the taxes HMRC checks most actively, because the money involved is collected by the business on HMRC’s behalf rather than paid out of profit. A VAT check is therefore less about whether you have been dishonest and more about whether your records support the numbers on your returns.

Why HMRC opens a VAT check

HMRC decides how often to look at a business on two broad factors: how large or complex the business is, and whether it has a history of submitting VAT returns late or incorrectly. A business filing on time with stable, unremarkable returns will see HMRC rarely. A business with repayment claims that swing about, late filings, or a sector HMRC treats as higher risk will see HMRC more often.

Selection is not always a judgement about you. HMRC also runs checks to test the accuracy of its own risk models, which is why perfectly compliant businesses get picked.

How much notice HMRC gives

For a routine VAT visit HMRC normally gives seven days’ notice. That notice will usually say which periods and which records the officer wants to see, and gives you the chance to have your accountant present.

Unannounced inspections do happen. HMRC’s compliance handbook is explicit that an inspection can be carried out without prior notice, using the inspection powers in Schedule 36 of the Finance Act 2008, where giving notice would allow records, assets or trading activity to be concealed. Unannounced visits are approved internally and are the exception rather than the rule, but they are not rare enough to ignore.

What HMRC looks at

The core of a VAT check is your VAT records and the returns they support. In practice an officer is testing whether the output tax you declared matches your sales records, whether the input tax you reclaimed is supported by valid purchase invoices, and whether the treatment you applied to each supply is correct.

HMRC may also inspect business premises and assets. If a visit is taking place at your premises, you can have an accountant or legal adviser with you.

How far back HMRC can go

For VAT, the assessing time limit under section 73 of the VAT Act 1994 is four years, measured from the end of the accounting period containing the error. Four years is the maximum available except where the twenty year rule applies, which covers the most serious cases.

There is a second limit that often matters more in practice. An assessment must be made and notified within one year of evidence of facts coming to HMRC’s attention. That clock keeps running while the check is going on, so earlier periods can drop out of reach during a slow enquiry.

What happens after the visit

HMRC writes to you with the outcome. That letter typically covers any improvements you need to make to record keeping, any corrections you need to make to your account, whether you have over or underpaid VAT, and any penalties due.

If you disagree with a decision, you normally have thirty days to appeal. Alternative dispute resolution is also available where the disagreement is about facts or about how HMRC has approached the check.

What a VAT check costs you

The tax itself is only part of it. A VAT check consumes professional time: retrieving records, reconciling returns to the ledgers, explaining treatments, corresponding with the officer, and attending the visit. That time is chargeable by your accountant at their normal rate, and it is charged whether the check finds anything or not.

There is no HMRC scheme that reimburses a taxpayer for the cost of professional representation during a compliance check. A check that concludes with no adjustment still leaves you with the fee note.

Common questions

Can HMRC inspect my business without telling me first?

Yes, in defined circumstances. HMRC’s guidance to its own officers states that an inspection can be carried out without prior notice, under the Schedule 36 Finance Act 2008 powers, where notice would allow records, assets or business activity to be concealed. Most visits are notified, normally with seven days’ notice.

How far back can HMRC assess VAT?

Four years from the end of the relevant accounting period is the standard maximum under section 73 VATA 1994, extending to twenty years in the most serious cases. Separately, HMRC must make and notify the assessment within one year of the evidence of facts coming to its attention.

Can my accountant be present during a VAT visit?

Yes. HMRC’s published guidance confirms you can have an accountant or legal adviser with you during a visit.

How long do I have to appeal a VAT decision?

Normally thirty days from the decision. Alternative dispute resolution can also be requested where you are unhappy with the decision or with the scope of what HMRC is checking.

Does tax fee protection insurance cover a VAT compliance check?

Cover depends on the policy wording, so check yours. The general shape of these policies is that they pay the professional fees of defending an HMRC compliance check, and they respond to checks that begin while cover is in force. A check that has already started cannot be insured after the event, which is the single most common reason a claim fails before it starts.

Related guides

This page explains how HMRC VAT compliance checks work. It is general information, not tax advice, and it does not describe the terms of any particular insurance policy. Always read the policy wording and speak to your accountant about your own position.

Solar Insurance Services (Medway) Limited is registered in England and Wales, company number 05439438, and is authorised and regulated by the Financial Conduct Authority, firm reference number 459582.

Sources: HMRC guidance on VAT visits and inspections; HMRC guidance on tax compliance checks; HMRC Compliance Handbook CH207400 on when a visit may be needed; HMRC VAT Assessments and Error Correction manual on assessing time limits under section 73 VATA 1994.