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HMRC internal manual

VAT Accounting Manual

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HM Revenue & Customs
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Accounting for VAT: Payments of VAT claimed on returns: Withholding VAT credits

Section 25 of the VAT Act 1994 three grounds for not paying immediately a VAT credit which is acknowledged to be due to the trader. They are:

  • A power in section 25(4) to hold over a VAT credit to a subsequent period. There is no developed policy on the use of this power and circumstances where it is thought appropriate should be discussed with the policy team.
  • A power in section 25(5) to withhold a VAT credit if a return for an earlier period is missing. This may be used routinely in any case where these circumstances arise.
  • A power in section 25(6) to make the payment subject to conditions where no taxable supplies have been made when the claim is made. This is regularly used when registering an intending trader.

There is, additional to these statutory powers, a discretionary power to make payments outside the terms of section 25.

Discretionary power

The courts have accepted that the Commissioners have discretion to make a payment to a trader where a trader requests:

  1. An interim payment of a section 25 VAT credit which is in the course of verification. That is to say cases where the Commissioners have not yet satisfied themselves that a VAT credit arises; and
  2. Cases where a decision has been taken that no VAT credit arises, but that decision is being litigated by the taxpayer.

General approach to use of the discretion to make an interim payment

In exercising discretion whether to make an interim payment you are exercising the Commissioners’ powers of collection and management under Schedule 11, paragraph 1 of the VAT Act 1994. In doing so you must have regard to the material facts and circumstances of each individual case. The nature of the exercise makes it impossible to exhaustively define all the factors to which you will have regard. Accordingly, this guidance should be regarded as no more than the identification of the general criteria which are likely to be present in most cases. There will be cases in which not all of the criteria will be relevant. There will also be cases in which your discretion will be exercised by reference to criteria that are not mentioned in this guidance.

In exercising this discretion, a distinction needs to be made between:

  1. Those cases in which the Commissioners have satisfied themselves that the claim, or part of it, is well-founded - see VATAC1560
  2. Those cases in which the Commissioners have yet to make a decision as to the validity of the claim - see VATAC1570
  3. Those cases in which a decision has been made to reject the claim which has been litigated - see VATAC1580.