Essential Steps for VAT Audit Preparation
An HMRC VAT audit can be a stressful experience for any business, but proper preparation can make the process smoother and help avoid penalties. Here's our comprehensive guide to getting ready for a VAT inspection.
1. Understand What HMRC Looks For
HMRC typically examines several key areas during a VAT audit:
- Accuracy of VAT returns and calculations
- Proper documentation of sales and purchases
- Correct application of VAT rates
- Evidence of due diligence in VAT processes
- Compliance with Making Tax Digital (MTD) requirements
2. Organize Your Records
HMRC can request up to 6 years of records. Ensure you have:
- Complete sales and purchase invoices
- VAT account showing how each return was calculated
- Import/export documentation if applicable
- Records of any VAT adjustments or corrections
Digital records are preferred under MTD, but paper records must be legible and complete if used.
3. Conduct a Self-Review
Before the audit, review your own records to identify and correct any issues:
- Verify that input and output VAT calculations are accurate
- Check that VAT has been correctly applied to all transactions
- Ensure all required documents are present and properly filed
- Identify any areas of potential concern and prepare explanations
4. Prepare Your Team
Key staff members should understand:
- What to expect during the audit process
- How to locate requested documents quickly
- Who will be the main point of contact with HMRC
- What information they are and aren't authorized to provide
5. During the Audit
When HMRC arrives:
- Be cooperative but don't volunteer unnecessary information
- Have a dedicated workspace prepared for the inspector
- Take notes of all questions asked and documents reviewed
- Ask for clarification if you don't understand a question
6. After the Audit
Once the audit is complete:
- Review any findings or recommendations from HMRC
- Implement corrective actions for any identified issues
- Consider whether you need to make voluntary disclosures
- Update your processes to prevent future errors