On occasion, Her Majesties Revenue and Customs (HMRC) will perform an inspection into contractors VAT submission.
There are no set criteria for when or why this will happen but it can often come down to a matter of comparison. For example, they will often compare your VAT returns with those of other contractors of your stature in your area.
If you have an unusually high amount of expenses claims in comparison to other individuals in your area, the inspectors may pick up on this and begin an investigation in order to determine why this is. If it is completely genuine you have no reason to be concerned, it will simply be a bit time-consuming however if you have fraudulently claimed expenses and cannot prove it then you may be in liable for a large fine.
VAT Inspections
On some occasions the HMRC decides to perform an investigation on a purely random basis so you may be caught out in this respect, but the majority of contractors will merely see this as unnecessary hassle. However, those that have committed an offence that are caught either through a random inspection or a targeted one can expect to be treated harshly and be added to the HMRC watch list.
They may also choose to begin an inspection if the contractor has filed a late VAT return or a strange fluctuation in the value of VAT paid as well as reclaimed. The HMRC make no attempt to hide the fact that any contractor found to have been late in submitting their VAT return are liable to VAT inspections much more frequently than those who have always handed in their returns on time.
VAT Inspections Procedure
The first you will hear of the VAT inspection taking place will probably come in the form of a telephone call from your nearest HMRC office, making you aware that the inspection will be taking place.
It will then request that you arrange a time and date for the inspector to visit your office or home within one month of the phone call where possible. You will need to make all relevant documents and receipts available to the inspector and provide them with a room in which they can work. Following this initial meeting in which the inspector has assessed your financials and discussed with you your situation, they will arrange a second meeting in which they will discuss their findings and tell you the ramifications of any issues they have found with your situation.