VAT Investigations

VAT investigations are typically triggered either if a routine VAT inspection uncovers irregularities, or as a result of out-of-pattern declarations and repayment claims, or if you operate in a sector deemed “high-risk” by HMRC. Depending on the severity of the suspected offences, HMRC can choose to exercise their powers under the Civil Investigation of Fraud procedures or, in the most serious cases, to launch a criminal investigation. Successful prosecution of criminal cases will normally result in imprisonment.

Intervention by HMRC can be initiated by pre-notification of an enquiry at one end of the scale, to an unannounced on-site inspection at the other. You may be required to produce relevant documents for inspection and potentially for removal by HMRC and to attend interviews. We strongly recommend that you contact us as soon as you are made aware of HMRC’s intentions, so that you are properly represented at every stage of the process.

On conclusion of their investigation, HMRC will issue you with an assessment of the VAT understated or over-claimed, together with a proportionate penalty. The applicable penalty rates are detailed in the table below. With our expert tax advisers representing you, there may be opportunities to reduce the proposed penalties or structure a more favourable payment plan.

Penalty rates for inaccurate VAT Returns

The penalty rates for an inaccurate VAT Return depend on why you made the error. The more serious the reason, the greater the penalty can be. The penalty is calculated as a percentage of the tax unpaid, understated, over claimed or under-assessed, as a result of your errors. You will also have to pay the VAT and any interest due in addition to the penalty.

Reason for the error

Disclosure of the error to HMRC

NB A disclosure is unprompted if at the time you tell HMRC you have no reason to believe HMRC have discovered it, or are about to discover it.

Minimum penalty (as a % of the tax)

Maximum penalty (as a % of the tax)

Careless (you fail to take reasonable care)

Unprompted

0%

30%

Prompted

15%

30%

Deliberate (you give HMRC a document you know contains an inaccuracy)

Unprompted

20%

70%

Prompted

35%

70%

Deliberate & Concealed (you give HMRC a document you know contains an inaccuracy and you have tried to hide that inaccuracy)

Unprompted

30%

100%

Prompted

50%

100%

If you are concerned about the integrity of your VAT procedures, our specialists can review them and advise you accordingly – prevention is always better than cure. If you receive notice of an impending VAT investigation or VAT investigators arrive on your premises unannounced, you should contact us immediately.