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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: DMB manual processing: raising a prime assessment

VAT registered businesses have a legal obligation to submit VAT returns and pay any tax due not later than the given date - ‘the due date’ - which is normally one month after the end of the prescribed accounting period.

Where a customer fails to submit a return, section 73(1) of the VAT Act 1994 gives the commissioners the power to make an assessment to the best of their judgement in order to establish the customer’s liability and create an enforceable debt for that period.

Such assessments, issued in the absence of a return, are known as prime assessments. For further information see VAT Assessments and Error Correction Manual VAEC1230.

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). For details regarding time limits please see DMBM530500 ‘Recovery Timetable and Indicators’.

Authorisation levels for manually raising a Prime Assessment

  Up to £100,000 £100,000 to £1 million Over £1 million
       
Authorised by Assistant Officer Officer Higher Officer

 

Assessments over £1 million also need to have further checks made in Electronic Folder (EF) e.g. annual accounts. This makes sure the amount is based on historical data.

As the forms used to raise the assessments don’t require a countersignature, in order to ensure that a complete audit trail is maintained, the authorising officer should put a secure note onto EF and also add a note to the IDMS action history.

Where the automatic calculation and notification of a prime assessment is not appropriate because it meets certain criteria or an inhibit signal has been set (VAEC2150), details of the assessment will be sent to the local office for manual issue. VAEC2210 has more information.

There may be cases in these circumstances where DMB should not issue the assessment forms (VAEC2160).

Particular care should be taken in the case of missing first period returns and Electronic Folder must be checked for any User Interests set prior to taking any action. This is to avoid inappropriate DMB intervention in Hidden Economy Team (HET) cases.

HET will set their UI on EF and inhibit the potential issue of an automatic assessment by VAT 704 input for the first period. If the first return is consequently not submitted HET will raise the manual assessment VAT 152 which will be closest to the true liability as it is based on the information they have already gathered as part of the registration by HET. The recognised UI description is “special exercise” message “Compliance centre HET aftercare etc” If a UI is set do not raise a manual assessment for the first period without their authority.

Note for DTOs working large debts

Any officer issuing a manual assessment for £100,000 or more should note IDMS at the same time the assessment is sent for input. This is to ensure the relevant DTO, who may already be working a large debt, know it is about to increase or they will be receiving a new large debt to work. If the assessment is for £500,000 or more, the officer raising the assessment should also contact the relevant DTO to make them aware.

Action if an assessment is out of time

If a period is out of time for assessment under both the two year and the one year rule and the VAT is not forthcoming, a VAT 127 nil pro-forma must be completed, giving the following reason:

“Out of time for assessment, non enforceable debt estimated as £…….”

The VAT 127 should be submitted to line management for countersignature.

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D0949 Prints

D0949 reports are now only available through PRADA, Print Retrieval And Data Access Support Page. It lists payment customers who have returns missing in periods which are about to go out of time for assessment under the 2 year rule. The customers listed may be deregistered or continuing customers.

The list may include missing period returns for traders who have been reclassified from repayment to payment. These periods may already be out of time for assessment under the 2 year rule. In these cases a visit may be appropriate to establish the liabilities for the missing periods or, if no tax is due, VAT 127 pro-forma nil return action may be appropriate.

The aim of this list is to remind local staff that urgent action is required in respect of those customers before the time limit for making and notifying an assessment expires and any revenue is consequently lost.