HMRC sharpens VAT compliance expectations with GfC13

His Majesty’s Customs & Revenue (HMRC) has published its 13th Guidelines for Compliance (GfC13), outlining how taxpayers can help ensure self-assessment returns — including value added tax (VAT) — are accurate and complete.

This latest guidance sends a clear signal: businesses must take ownership of their VAT reporting processes, strengthen internal controls, and resolve uncertainties before filing.

• Businesses are expected to strengthen VAT processes, resolve uncertainties early, and be prepared for closer scrutiny of returns.
• Larger enterprises face added responsibility under the Senior Accounting Officer (SAO) regime, with personal sign-off requirements and potential penalties for weak VAT controls.
• Making Tax Digital and potential e-invoicing reforms mean automation, digital links, and audit-ready systems are essential to meet HMRC’s evolving expectations.

The Guidelines for Compliance are HMRC’s way of clarifying its expectations and reducing compliance risk. With GfC13, the guidance for taxpayers is clear:

• Check returns carefully before filing
• Avoid aggressive interpretations of the law
• Resolve uncertainties early

This builds on GfC8 from 2023, underscoring HMRC’s continued emphasis on strong VAT processes.

GfC13 signals a heightened focus on end-to-end VAT consistency and audit readiness. Businesses should anticipate:

• More frequent and detailed audits
• Closer inspection of documentation and audit trails
• Expectation to defend consistent, well-governed VAT practices

Weak controls may lead to penalties, interest, or reputational concern.

For larger enterprises, HMRC’s Senior Accounting Officer (SAO) regime adds another layer of accountability to VAT and tax compliance. The rules apply to companies that are part of groups with a turnover of more than £200 million or a balance sheet of more than £2 billion.

Under this regime, a named SAO — usually the Chief Financial Officer or equivalent — must:

• Take reasonable steps to ensure the business establishes and maintains appropriate tax accounting arrangements 
• Provide an annual certificate to HMRC, confirming whether those arrangements are adequate 
• Personally sign off on compliance, with the risk of personal financial penalties if obligations are not met

For VAT, this means large businesses must be able to demonstrate that:

• Controls and processes for capturing, reporting, and paying VAT are robust 
• Documentation is clear and up to date, showing how VAT-sensitive transactions are managed 
• There is an audit trail from source data to VAT return submission, supported by digital links where required 
• Any weaknesses identified are promptly addressed

The SAO regime reinforces the expectation that VAT compliance is not just a finance function task, but a board-level responsibility. For enterprise businesses, this makes investment in technology, automation, and proper governance even more critical.

Case law and HMRC guidance provide useful lessons on what tribunals expect when judging whether ‘reasonable care’ has been taken:

• Documented tax controls: Systems should allow tax liabilities to be calculated “accurately in all material respects” — a standard drawn from the Castlelaw case. 
• Risk-based monitoring and testing: Selective testing is appropriate, and absence of full coverage isn’t automatically a breach.  
• Adviser governance: Businesses should choose competent advisers, provide full and accurate information, and check their outputs in a proportionate way. 
• Outsourcing oversight and in-house training: Where tax work is outsourced, oversight remains essential. In-house teams should be trained to manage processes effectively. 
• Evidence trail: Keep contemporaneous records of reviews, reconciliations, exceptions, and remedial actions. Tribunals often see this as the tipping point between ‘reasonable care’ and ‘careless’.

These takeaways highlight that reasonable care is not about perfection, but about demonstrating active governance, monitoring, and clear evidence of compliance efforts.

In addition to MTD, HMRC has also launched a consultation on e-invoicing. This reflects a wider global trend towards digitalisation of tax reporting. If adopted, e-invoicing — potentially combined with an e-reporting or clearance model — could transform VAT compliance in the U.K.

For businesses, the opportunities are significant:

• Streamlined invoicing processes, reducing manual effort and cost 
• Improved data quality and accuracy, supporting faster reconciliation and fewer errors 
• Stronger internal controls, with structured data that is easier to validate and audit

At the same time, HMRC would gain greater visibility into transactions in real time, enabling it to close the VAT gap more effectively, spot anomalies quickly, and strengthen the integrity of the U.K. tax system.

HM Treasury has also noted that the EU’s VAT in the Digital Age (ViDA) proposals could have an impact on Northern Ireland, where VAT rules for supplies of goods remain aligned with the EU under the post-Brexit agreement. If ViDA introduces mandatory digital reporting across the EU, the U.K. may need to develop new systems and reporting structures to ensure compliance for Northern Ireland transactions.

While no firm mandate has been announced, the consultation suggests businesses should prepare for a future where e-invoicing and e-reporting are central to U.K. VAT compliance.

HMRC’s digital-first approach amplifies the importance of automation for businesses. Reliance on spreadsheets or manual processes may expose greater risk during audits. Automation offers:

• Accurate, regularly updated VAT rules applied consistently across regions 
• Real-time, audit-ready VAT reporting that aligns with HMRC expectations 
• Seamless integration with ERP and finance systems for precise data capture 
• Support for e-invoicing and live reporting mandates, critical in today’s compliance landscape

With GfC13, HMRC continues raising the bar for VAT compliance. Combined with its ongoing digital evolution, MTD requirements, SAO obligations, and potential e-invoicing reforms, the message is clear: robust, digital VAT frameworks are now essential.

Businesses that modernise processes, strengthen digital links, and prepare for new models of e-reporting — including the possible impact of ViDA on Northern Ireland — will be better positioned to reduce risk and respond confidently when HMRC reviews their VAT returns. 
 
Avalara can help by delivering regularly updated VAT content and tax rules, supporting end-to-end VAT reporting and e-invoicing, and providing the transparency HMRC increasingly expects. Avalara offers AI-powered compliance intelligence to anticipate issues and optimise VAT configurations, as well as enabling digital audit trails that track transactions from source data through to VAT returns.  

By embedding automation and audit-ready documentation into VAT processes, Avalara can help businesses strengthen compliance frameworks, reduce risk, and demonstrate confidence in the face of HMRC reviews. Learn more about Avalara VAT solutions.