Conducting a VAT Health Check: Identifying and Rectifying Errors for a Clean Bill of Health

07 Aug 2023


Ensuring compliance with Value Added Tax (VAT) regulations is crucial for businesses to avoid penalties and maintain a healthy financial standing. In this blog post, we will explore the significance of conducting a VAT health check and how it can help identify and rectify potential errors before they are discovered during an official inspection by HMRC.

The Importance of a VAT Health Check

A VAT health check is a comprehensive review of a company’s VAT records and procedures to assess its compliance with tax regulations. It involves scrutinizing transactions, verifying documentation, and ensuring accurate VAT reporting. By conducting regular VAT health checks, businesses can proactively identify errors and rectify them before they come to the attention of tax authorities, minimizing financial and reputational risks.

The VAT Health Check Process

During a recent VAT health check conducted for one of our clients, we experienced firsthand the value of this proactive approach. Our client had maintained impeccable records, but a particular area required closer examination—zero-rated transactions.

Discovery of Zero-Rated Sales Error

Initially, the finance director believed zero-rated transactions pertained to purchases rather than sales. However, upon closer inspection of the records, we discovered that the company had made zero-rated sales. These sales were made in the Shrewsbury shop to customers outside the UK. Unfortunately, the staff had incorrectly treated these sales, leading to an oversight in declaring the appropriate VAT.

Consequences and Quantification

As the customers took the goods, the transactions did not qualify for zero-rating since the client lacked proof of the goods leaving the UK. Consequently, VAT should have been declared on these sales. The finance director was genuinely surprised by these transactions but was grateful for their identification during the VAT health check.

Using the business records, we could quantify the amount of VAT due to HMRC in the current year. Additionally, the finance director determined that the error in previous years was of a magnitude that could be adjusted in the subsequent VAT return. Identifying and rectifying the mistake promptly was crucial in mitigating potential penalties.

Preparing for an HMRC Inspection

Shortly after the VAT health check, the finance director received a call from HMRC requesting a VAT inspection. Despite the upcoming inspection, the finance director remained confident and reassured as the proactive VAT health check prepared him for potential discrepancies. The thoroughness of the health check allowed the company to rectify the identified errors in advance.

Positive Outcome and Clean Bill of Health

Following the HMRC inspection, the finance director contacted us to share the good news—a clean bill of health had been granted to the company. The VAT health check empowered the business to rectify errors promptly, thereby minimizing potential penalties and maintaining a positive relationship with tax authorities.


Conducting regular VAT health checks is a vital practice for businesses seeking to ensure compliance and minimize financial risks. By proactively reviewing VAT records and procedures, potential errors can be identified and rectified before they come to the attention of tax authorities. As demonstrated in the case of our client, the VAT health check provided an opportunity to correct errors, resulting in a clean bill of health and the avoidance of additional penalties.

Remember, a thorough VAT health check can be instrumental in safeguarding your business’s financial well-being and reputation. Stay proactive, stay compliant.

If you want to learn more about our VAT health check service, simply fill in the form below, and one of our Team will call you to discuss.

VAT Health Check Service Enquiry


Alexandra Hyde

VAT Consultant

WR Partners

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