HMRC Is Checking Your Dealership's VAT: What Now?
An HMRC letter or visit can make an ordinary records problem feel like a criminal accusation. Pause. A VAT compliance check is not a finding of fraud; its outcome depends on the evidence.
Your first job is to identify what HMRC has actually opened, the periods and transactions in question, and the next deadline. Continue filing returns and paying amounts that fall due while you organise the response.
Caira is AI-powered and uses a knowledge base containing legal documents for England and Wales. You can upload the HMRC letter, information request and relevant deal documents and ask it to help summarise what has been requested and draft a chronology. Check the result against the originals before relying on it.
Is this a check, a Kittel case or a fraud investigation?
The label matters.
What you have received | What it usually means | Immediate focus |
|---|---|---|
VAT compliance-check letter or visit notice | HMRC is checking the accuracy of returns or repayment claims | Confirm scope, periods, meeting purpose, records and deadline |
Information notice under Schedule 36, Finance Act 2008 | A statutory request for information or documents reasonably required to check the tax position | Read each instruction; statutory-record and tribunal-approved requirements have restricted or no ordinary appeal rights |
Letter alleging you knew or should have known of fraud | HMRC may be considering refusal of input tax under the Kittel principle | Build a vehicle-by-vehicle account of knowledge, warnings, checks and commercial rationale |
Code of Practice 9 offer | HMRC suspects deliberate conduct and offers the Contractual Disclosure Facility | A specialist should examine the 60-day decision, scope and proposed disclosure before anything is accepted, rejected or signed |
Criminal-investigation language, caution or search | A different and more serious process may be underway | Record exactly what occurred and identify specialist representation immediately |
Do not let the word “fraud” blur these routes together. A non-dishonest trader may still face a civil Kittel input-tax denial. Accepting the COP9 facility admits deliberate behaviour. HMRC's undertaking against criminal investigation covers only fraud fully disclosed by that individual—not undisclosed conduct, other people or companies, unrelated offences or other authorities. Criminal allegations follow another route and prosecutors make their own decisions.
A Schedule 36 notice can reach only information or documents reasonably required to check the tax position. Qualifying legally privileged material is protected, but that is not a blanket reason to withhold business records. Follow the rights and instructions on the particular notice.
What HMRC may ask a car dealer to produce
Expect HMRC to connect the VAT return to individual cars, counterparties and bank movements. That can include:
purchase and sales invoices, credit notes and VAT calculations;
margin-scheme stock books and the purchase history supporting eligibility;
bank statements, finance documents and explanations for third-party payments;
V5Cs, VIN records, vehicle inspections, transport and insurance evidence;
DVLA, MOT, mileage, provenance, import, customs and NOVA material;
dealer-management-system records, native emails, WhatsApp exports, attachments, audit trails and document metadata;
Companies House, VAT-number, premises and counterparty checks; and
evidence explaining unusual prices, short holding periods, linked parties or circular movements.
Will Kennedy of Warford Cars described three HMRC officers reviewing four years of his dealership's deal files, including invoices, VAT calculations, finance records, dealer-system records and bank statements. He also described interviews and the stress of finding older paperwork. His video is a personal account of a compliance visit, not a published HMRC finding or proof of VAT fraud.
A calm first-week plan
When | What to do | Why it matters |
|---|---|---|
Today | Save the letter and envelope, verify the contact independently, record the deadline and stop routine deletion | Fake HMRC letters and calls exist; preservation prevents avoidable gaps |
Within 24 hours | Identify tax periods, VAT boxes, suppliers, customers, registrations and VINs in scope | Turns a frightening request into a defined set of transactions |
Next | Contact the accountant who prepared the returns and identify specialist tax-investigation support if HMRC mentions Kittel, COP9, a formal notice, caution or search | Ensures ordinary bookkeeping and specialist issues are separated early |
Next | Create an index linking every HMRC question to documents and a named staff member | Makes omissions visible without altering original records |
Before a meeting | Ask in writing who will attend, whether it is voluntary, its purpose, topics, records required and whether notes will be shared | Helps the right people prepare without guessing |
Before submitting | Reconcile invoices, stock books, VAT returns and bank entries; list unresolved gaps honestly | A clear discrepancy schedule is better than a silent contradiction |
Throughout | Keep a dated contact log and submit through a trackable channel | Preserves what was asked, answered and still remains open |
HMRC normally arranges a visit by agreement and usually gives at least seven days' notice, although an advance-notice or unannounced statutory inspection is possible. You may ask to change an inconvenient date. A meeting in a compliance check is generally voluntary unless HMRC is relying on a formal power, so ask what power and purpose apply rather than assuming.
For the index, record the HMRC request number, VAT period, supplier, registration and VIN, source document, responsible staff member, status, discrepancy and submission date. Do not edit old messages or backdate a stock-book entry. Ask a supplier for a genuine duplicate or corrected invoice and preserve the request; never pass a dealer-created schedule off as the original. Concealing or destroying documents can produce separate penalties and, in some circumstances, criminal consequences.
If HMRC says the deals were connected with fraud
Ask HMRC to identify the transactions, alleged tax loss, fraudulent evasion, connection and the facts said to establish that you knew or should have known. The Kittel test requires all four elements, proved on the balance of probabilities.
Build a chronology for each car. Show when you first heard of it, who controlled negotiations, why the price and margin made sense, how you verified authority and bank details, where the car physically moved, which anomalies arose and how they were resolved.
The motor cases show why detail matters. In Northside Fleet Ltd v HMRC [2022] UKUT 256 (TCC), a used-car dealer had received explicit HMRC warnings and simple checks would have exposed supplier-address problems. Its appeal was dismissed. In HMRC v Alan McCord trading as Hi-Octane Imports [2021] UKUT 153 (TCC), involving imported performance cars, the dispute was examined transaction by transaction.
Another dealer has described buying 38 nearly-new pickups without V5Cs, later finding several keeper entries and then reconstructing four years of records for HMRC. That is a useful reminder to preserve the story, not proof of the narrator's VAT conclusions.
Decisions, penalties and time limits
HMRC should explain its decision in writing. If you disagree, the normal appeal window is 30 days. You may be able to provide new information, request an independent HMRC review or appeal to the First-tier Tribunal. Alternative dispute resolution can sometimes help, but it does not stop a deadline.
For a VAT assessment appeal, the disputed tax generally must be paid or deposited before the tribunal can hear it. If that would cause genuine financial hardship, HMRC—or, after refusal, the tribunal—can consider suspension. Cash-flow forecasts, accounts, bank facilities, liabilities and attempts to obtain finance may matter.
For transactions entered into on or after 16 November 2017, section 69C of the Value Added Tax Act 1994 can impose a penalty at 30% of VAT denied or assessed under the knowledge principle, subject to the statutory reduction rules. It is separately appealable, may sometimes be attributed to responsible company officers and cannot be combined with a Schedule 24 penalty for the same inaccuracy. It is not an automatic consequence of every records error.
Assessment periods are issue-specific. Four years is a common starting point. A longer limit, potentially 20 years, depends on separate statutory conditions such as specified deliberate conduct; “should have known” does not by itself make conduct deliberate. Do not assume the number of years in somebody else's video determines yours.
Keep the response truthful and manageable
During an unexpected informal call, you do not need to answer from memory. Ask for the question and scope in writing, say when records can be checked and distinguish fact from recollection. That does not remove a duty to comply with a valid statutory notice or produce lawfully required existing records. If an answer later proves wrong, correct it promptly and keep both versions.
You can try Caira free; after that it is £15 a month. It may help organise letters, transaction records and a response index, or point out where dates and vehicle identifiers do not line up. It cannot determine HMRC's conclusion or replace the original evidence. For prevention, see our motor-trade checks before buying.
This may take time. Missing paperwork is a problem to investigate, not proof that the worst outcome has already happened. Work through one transaction and one request at a time.
Questions you may hesitate to ask
Does an HMRC visit mean I am suspected of a crime?
No. HMRC conducts routine and risk-based compliance checks. Ask what type of check is open and what statutory power, if any, supports each request.
Can HMRC refuse VAT even if I did not participate in the fraud?
Potentially, under the civil Kittel principle, if HMRC proves you knew or should have known that your transaction was connected with fraudulent evasion. That is not automatically a criminal finding.
I cannot find an old invoice. Should I make a replacement?
Never present a reconstruction as an original. Record what is missing, search the dealer system, email, bank and counterparty records, and label any later schedule with its sources and creation date.
This article is general information, not financial, legal, tax, or medical advice.
