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HMRC internal manual

VAT Accounting Manual

Accounting for VAT: payments of VAT claimed on returns: Commissioners have yet to make a decision

In cases where the Commissioners have yet to make a decision in relation to the sum in question, the following factors must be considered.

Information to be provided by the trader

You can reasonably expect a trader seeking an unsecured interim payment to support his application with a reasoned written statement supported by evidence in a letter, witness statement or other form. The reasoned written statement should address both the grounds for the claim and the amount of the claim, demonstrating why there is a particular need for the identified sum to be paid at that time.

Where an application for an interim payment has been made without a reasoned and supported written statement you should ask the trader to provide one. Additional information may be required where the trader’s request is based on hardship.


Where a trader seeks an interim payment on grounds of hardship, mere feelings of sympathy are not sufficient to justify a discretionary payment. There must be evidence to justify the use of the discretion and it is reasonable to expect the trader to provide at least the following:

  1. Up-to-date management and audited statutory accounts and detailed profit and loss accounts.
  2. In cases in which the applicant belongs to a group of companies, evidence of any intra-group payments and outstanding balances together with audited group accounts and consolidated financial statements.
  3. All relevant bank statements.
  4. Details of outstanding debtors and creditors and an independently verified explanation as to why creditors are not prepared to await the outcome of the verification process.
  5. Evidence as to why directors’ and/or shareholders’ funds cannot be used to pay off creditors and/or to provide security or guarantees in relation to any interim payment.
  6. Evidence that reasonable steps have been taken to secure repayment from any debtors.
  7. Details of any dividends or any other kind of payment paid to directors or shareholders during the relevant time frame.
  8. In MTIC and other cases in which the applicant operates in a sector in which fraud is widespread and the risk that the Commissioners will conduct a verification process is high, evidence that steps have been taken by the applicant to ensure that the ability to pay creditors is not substantially dependent upon a payment or series of payments by the Commissioners by a particular date or period of time.
  9. Any further information reasonably requested by the Commissioners for the purposes of ascertaining the true cause of the alleged hardship.
  10. Where a trader seeks an interim payment for the purposes of funding litigation against the Commissioners the trader should produce evidence of relevant legal costs incurred to date and anticipated legal costs, specifying in each case the use to which the costs have been or will be put.

You may take into account any failure by the applicant trader to provide some or all of the above information, in deciding whether or not to make an interim payment.

The provision of security

Cases covered by schedule 11 power

The provision of security in cases before enquiries are complete is covered by VAT Act 1994, Schedule 11 paragraph 4 and you should follow the security guidance on what is acceptable security. You should be aware of the following when considering whether an offer of security is sufficient to make an interim payment.

  • In deciding whether to make a discretionary interim payment you must attach significant weight to any failure to provide security or guarantees, although any such failure should not be regarded as determinative.
  • In deciding whether and if so in what amount security or a guarantee should be accepted, you may have regard to the compliance record of the trader and the extent to which it is co-operating with the verification process.
  • Mindful of the Commissioners’ responsibility to protect public funds, you must attach significant weight to the prospects of recovering any payments made which it subsequently transpires should not have been made. In that context, because you are balancing the revenue risk with the harm to the trader, the offer of satisfactory security will remove that risk. So an interim payment in these circumstances is normally appropriate

Security in cases not covered by schedule 11

Schedule 11 paragraph 4 does not cover cases where a decision has been made that no input tax arises. Nevertheless the exercise of the discretionary power to make an interim payment requires you to consider any adequate offer of security as one of the factors in your decision. Because this is new ground and there is no settled policy, you should report to the policy team with a recommendation any case where you have made a decision to refuse an interim payment, but you consider that adequate security is available.

Balancing the risk to public funds against the interests of the trader

The risk to the Treasury must be balanced against the interests of the trader. Serious economic and other damage may be caused to a trader who may have a genuine entitlement to repayment but who suffers extensive delay in receiving payment pending the outcome of the verification process. In cases where there is credible evidence that the trader’s survival is at risk as a result of a delay in receiving the payment in question, it is important to give proper consideration to that risk.

In that context, you must consider the Commissioners’ responsibility to protect the revenue and balance that against the interests of the trader having regard to all material facts and circumstances. You must consider, for example, the possibility of paying only part of the interim payment applied for.

Before making a decision whether to grant an interim payment it is important to stand back and look at all the facts and circumstances of the case, balancing the interests of the trader against the interests of the Commissioners. In some cases, the correct decision will be readily apparent from the known facts established following the guidance above. But there will be difficult cases, and the guidance comes down to a need to make a reasonable judgement in all the circumstances of the case. If you are in doubt, you may need to discuss with a peer, refer the case to a line manager or seek input from the policy team. Ultimately, the trader must be given sufficient information to show how that decision was reached.