VAT reclaim and HMRC

What Happens in an HMRC VAT Repayment Enquiry

PropertyVAT Team · Updated 21 October 2026 · 3 min read

A property purchase produces an unusually large VAT reclaim relative to a business's ordinary trading. HMRC verifies a proportion of those before releasing funds. For a newly formed SPV filing its first return, it is a realistic expectation rather than bad luck.

Why claims get checked

Three features make a property reclaim checkable, and most purchases have all three:

• It is a repayment. Money going out attracts more control than money coming in.
• It is large, and out of proportion to the entity's normal activity.
• The entity is new, with no filing history to compare against.

None of these suggests anything is wrong. They simply describe a claim worth looking at.

What HMRC typically asks for

Usually a document request:

Occasionally a visit or a more detailed review follows, but a documentary response resolves most cases.

The thing that actually controls the timeline

Your response time.

Claims stall far more often on a slow or partial reply from the taxpayer than on HMRC's own processing. A request answered completely by return moves; a request answered in three instalments over six weeks does not.

So the useful work happens before you file, not after the letter arrives.

Build the pack before you file

Assemble this at completion, while everyone is still engaged:

1. The seller's VAT invoice. Chase it on completion day. Sellers' solicitors disengage quickly, and an invoice that is easy to obtain in week one is hard in week six.
2. The completion statement.
3. Your VAT registration certificate.
4. Your option to tax notification and HMRC's acknowledgement, where relevant.
5. A short written explanation of intended use — will the property be let, occupied, developed, and on what VAT basis.
6. Funding documentation.

With that in a folder, a verification letter is a half-hour job rather than a three-week project.

What makes a claim look worse than it is

• No valid VAT invoice, only a completion statement. The invoice is the primary evidence.
• An unexplained intended use, particularly where exempt use is possible.
• Inconsistency between the return, the contract and the registration details.
• An option to tax notified late, or not acknowledged.
• A gap between the registration effective date and the completion date.

The funding consequence

If you have bridged the VAT, interest runs while the claim is held. That is the practical cost of verification, and it is predictable.

Where the profile is checkable — a new SPV, a large first claim — agree a facility term with headroom from the outset. Extending a facility that was sized against the fastest possible outcome is more expensive than simply having asked for longer at the start.

If your claim is held

1. Respond fully and quickly; a complete reply beats a fast partial one.
2. Supply the VAT invoice, not just the completion statement.
3. Explain intended use plainly.
4. Keep your accountant involved — they can often pre-empt the next question.
5. Tell your lender, so the facility term can be managed rather than breached.

This guide is general information, not tax advice. HMRC processes vary by case — work with your accountant on any enquiry.