HMRC may review transactions and the movement of goods when carrying out compliance checks, repayment verification work or enquiries into specific trading activities. These reviews are often focused on understanding whether transactions reflect genuine commercial activity and whether the records presented accurately support what has taken place.
Businesses should be prepared to explain not only what was bought or sold, but also why the transaction occurred, how goods moved between parties and what evidence exists to support the commercial position being presented.
Understanding Commercial Logic
One of the key questions HMRC may consider is whether a transaction makes commercial sense.
When reviewing records, HMRC may seek to understand:
- The purpose of the transaction
- The relationship between the parties involved
- How the transaction generated commercial value
- Why particular goods or services were purchased
- How pricing and payment arrangements were determined
Businesses should be able to explain the commercial background behind significant transactions and provide supporting records where necessary.
Evidence of Goods Movement
Where physical goods are involved, HMRC may request evidence showing how goods moved through the supply chain.
Examples of supporting evidence may include:
- Delivery notes
- Shipping documents
- Courier records
- Proof of dispatch
- Proof of receipt
- Warehouse records
- Stock control records
- Import and export documentation
These records help demonstrate that goods existed, were transported as described and formed part of genuine business activity.
Supplier and Customer Checks
Businesses should take reasonable steps to understand who they are trading with.
Depending on the nature of the transaction, businesses may wish to retain records relating to:
- Customer identities
- Supplier details
- VAT registration information
- Contracts and agreements
- Purchase orders
- Sales orders
- Payment records
Maintaining clear records helps support transparency and may assist if questions arise during a compliance review.
Building a Clear Audit Trail
Good compliance relies on more than a single invoice.
An effective audit trail may include:
- Commercial agreements
- Orders and confirmations
- Invoices
- Payment records
- Transport documents
- Correspondence
- Accounting records
When these records align, they help create a consistent picture of the transaction and make it easier to explain the commercial reality of what occurred.
Responding to HMRC Questions
If HMRC requests information about a transaction, businesses should review the records carefully before responding.
A structured response should focus on:
- The facts of the transaction
- The commercial purpose
- Supporting documentation
- Evidence of goods movement
- Relevant accounting records
Providing organised and evidence-based responses can help reduce misunderstandings and support constructive engagement.
Final Thoughts
Transaction and goods checks are often centred on evidence, commercial logic and record quality. Businesses that maintain clear audit trails and preserve supporting documentation are generally better placed to explain transactions if HMRC raises questions.
Good compliance is built on accurate records, transparent commercial activity and evidence that supports the position being presented.
This article is intended as general guidance only and should be read alongside relevant HMRC and GOV.UK publications.
