VATAC1540 - Accounting for VAT: payments of VAT claimed on returns: the verification process
You are not under an obligation to make an immediate payment of a VAT credit simply because it has been claimed on a VAT return or by other means. Under the VAT Act 1994 and the Principal VAT Directive [2006/112/EC] you are required to satisfy yourself that a claim is valid. You must, however, have reasonable grounds for believing that a verification process is necessary. Any decision to embark on this process must be proportionate and made in good faith and you must ensure that the verification is justified and that it is not unduly onerous or lengthy.
The decision to begin verification is quite distinct from the issue whether to make an interim payment (see VATAC1550). But the question whether to embark upon or continue a verification process can in some circumstances be closely related to the question whether to make an interim payment. Indeed in some cases the need to complete the verification process will provide some or all of the justification for refusing to make an immediate interim payment. For these reasons, it is important that your decision on verification follows the following principles:
- The process of verification must be embarked upon within a reasonable period of time. What is regarded as reasonable will vary with the facts and circumstances of each individual case.
- In deciding whether to embark upon a process of verification you must show no prejudice or bias in favour of or against a particular business sector. However, you can legitimately attach significant weight to the need to protect the revenue in cases where the claim arises out of an area of trading in which there is widespread fraud, such as MTIC.
- The process of verification must be proportionate and must continually seek to balance the need to protect VAT revenues against the possibility that the taxpayer’s claim may be valid.
- Any unreasonable delay by the Commissioners in verifying the claim is likely to have an impact on the reasonableness of withholding the disputed sum. Any such delay must be balanced against all other material facts and circumstances, including any unreasonable or other delay which is not caused by the Commissioners.
- You must not make assumption as to the likely outcome of the verification process. However, it is permissible to make judgements and draw inferences in relation to any evidence of intentional delay, lack of co-operation or obstruction by the trader. It is not necessary to be satisfied that any such judgments or inferences are beyond reasonable doubt, merely on a balance of probabilities.
- In embarking upon and conducting a verification process you must continue to have regard to the effect of withholding the disputed sums from the trader and balance this against the need to protect the revenue.
- The anticipated length, complexity and nature of the verification process must be justifiable having regard to the amount of revenue at risk. You must always act proportionately.
- The anticipated length, complexity and nature of the verification process must be justifiable having regard to the likely value of the information being sought by that process.
- If it becomes apparent during the course of the process of verification that the claim or part of it is valid or that the process itself has become unnecessary or disproportionate the payment must be made as soon as reasonably practicable.
- You must keep traders generally up-dated as to the stage the inquiries have reached and why continued inquiry is necessary. Any apparent undue delay in the process must be explained and any sensible and proper questions in relation to the verification process must be answered without undue delay. The standard required is that of good administration. However, the exercise must not be such as to distract you from your foremost task of processing the investigations with all due speed. You are not obliged to provide a running commentary on what you have discovered and when. The information to be provided need not ordinarily be detailed or reveal confidential information but it must be sufficient to show whether you are continuing to discharge your duties to verify the claim.