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HMRC internal manual

Debt Management and Banking Manual

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HM Revenue & Customs
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Debt and return pursuit: VAT: recovery timetable/indicators: assessments and surcharge

Prime (Central) tax assessments

A prime (central) tax assessment is issued if a payment customer fails to render a return on time. In most cases this assessment is calculated and issued automatically by the computer in the VAT Central Unit. In a small percentage of cases the computer either cannot calculate an assessment (e.g. belated notifications) or is unable to issue an assessment (e.g. automatic assessments are unrealistic and are therefore manually suppressed).

When a prime assessment cannot be issued for a continuing customer, details of the assessment will be sent to the local office for manual issue (see DMBM530730). The time limits for prime assessments, as for any assessment made under section 73(1) VAT Act 1994, are contained in sections 73(6), 77(1) and 77(4); see VAEC1130.

Time Limits for Assessments

The two year rule

The two year rule allows you to make an assessment for a prescribed accounting period, at any time, providing the last day of the period which contains the misdeclaration, or for which no return was rendered, is no older than two years old on the day you make and notify your assessment.

Assessments for periods which are over two years old are governed by the ‘one year’ rule and the ‘three year’ capping rule, under which we can assess beyond two years within certain restrictions. See VAEC1141.

The one year rule

The one year rule allows an assessment to be made up to ‘one year after evidence of facts sufficient in the opinion of the commissioners to justify the making of the assessment, comes to their knowledge’. See VAEC1142.

‘Sufficient’ facts means having the necessary information to ensure the assessment is to ‘best judgement’. The ‘one year’ rule applies in conjunction with the ‘four year’ rule.

The four year rule

The four year rule means you will be in time to assess if the last day of the period which contains the misdeclaration, or for which no return was rendered, is no older than four years on the day you make and notify your assessment. The ‘four year’ rule therefore works in a similar way to the ‘two year’ rule. The difference is that to be able to assess back as far as four years, your assessment must be made and notified within one year of evidence of facts. See VAEC1143.

The guidance regarding time limits on raising VAT assessments can be found in the VAT Assessment and Error Correction (VAEC) Manual.

Default Surcharge

To improve customer compliance the Finance Act 1985 made provision for the introduction of default surcharge for failure to render and/or pay returns on time. The system was introduced on 1 October 1986, for payment customers.

Most customers are regarded as being in default if their return and/or full tax for the relevant tax period are not received when due (see DMBM530510).

In June 2001 the Chancellor of the Exchequer said that automatic VAT fines will be levied only after written communication is first sent offering advice and help to sort out problems. In view of the departments rescue culture, businesses with a turnover of less than £150,000 will receive a help letter (VAT 172) at first offering help and advice.