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HMRC internal manual

Debt Management and Banking Manual

HM Revenue & Customs
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Debt and return pursuit: VAT: liability for payment: the taxable person

Debts reported for recovery action will be VAT debts of a person registered for VAT as a:

  • sole proprietor (individuals)
  • partnership
  • limited company
  • public limited company (PLC)
  • Local Authority or
  • non-profit making body.

Some may be no longer registered (de-registered), and some may be no longer required to be registered (unregistered/no longer liable). Section 25 (1) of the VAT Act 1994, provides:

“A taxable person shall-

a. in respect of supplies made by him, and

b. in respect of the acquisition by him from other member States of any goods,

account for and pay VAT by reference to such periods (in this Act referred to as “prescribed accounting periods”) at such time and in such manner as may be determined by or under regulations and may make different provision for different circumstances.”

Regulation 25 of the Value Added Tax Regulations 1995 [S.I 1995/2518] (“the VAT Regulations 1995”), provides for a return to be rendered within 1 month of the end of the period to which the return relates, although there is provision for monthly returns and non-standard period returns.

Regulation 40 (2) provides:

“Any person required to make a return shall pay to the Controller such amount of VAT as is payable by him in respect of the period to which the return relates not later than the last day on which he is required to make the return.”

Under Regulation 40 (3), the due date for payment shall not apply where the Commissioners allow or otherwise direct.

Recovery of VAT from a third party

In this circumstance the third party is defined as the mortgage company or solicitor of the taxable person.

The Commissioners would not have a cause of action against a third party (such as a solicitor or mortgage company) acting for the registered person in a transaction for any tax debt of the company. This includes when the taxable person has issued a VAT invoice and the monies including the VAT amount has been paid to the third party, usually in a property transaction.

The taxable person is still liable for payment of the VAT due even if the third party still holds the VAT element in respect of any monies they may be owed.

This is due to the principles of the tax liability inherent in the provisions of para. 5(1) Schedule 1 of the VAT Act 1994.

The Commissioners would equally have no indirect cause of action against a third party to seek restitution to recover the tax liability of the company.

It is inappropriate to interfere in the arrangements between a VAT registered entity and a third party company.