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HMRC internal manual

VAT Assessments and Error Correction

From
HM Revenue & Customs
Updated
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Powers of assessment: VAT assessment powers: Four and twenty capping time limit rules

Because the normal time limit for making assessments for VAT purposes increases from 3 years to 4 years, transitional provisions are required to ensure that relevant tax periods, that were out of time for assessing under the 3-year time limit cannot be assessed under the 4-year time limit. The normal 4-year time limit, for making assessments for VAT purposes applies from 1 April 2009.

Without further provisions, on 1 April 2009 you would be able to make assessments under the 4-year time limit for periods that on 31 March 2009 were out of time under the previous 3-year time limit.

Transitional provisions prevent this by disregarding a prescribed accounting period that ends (or the date of any acquisition, importation or event giving rise to a penalty that falls) on or before 31 March 2006. This means that by 1 April 2010 the 4-year time limit will apply in full.

So although the 4-year time limit applies from 1 April 2009, you cannot make assessments under this time limit for prescribed accounting periods ending on or before 31 March 2006. Nor can you make an assessment that relates to acquisitions, importations or events giving rise to a penalty, that occur on or before 31 March 2006.

Twenty year assessments

From 1 April 2009 you can make an assessment up to 20 years from the end of the prescribed accounting period or the date of the acquisition, importation or event giving rise to a penalty. You can only do this in limited circumstances. Briefly, this is where tax has been lost because

  • of deliberate behaviour, or
  • the person has taken part in a transaction knowing that it was part of arrangements intended to bring about a loss of tax, or
  • the person failed to comply with a notification obligation, or
  • the person failed to comply with an obligation regarding a designated avoidance scheme.

The 20-year time limit applies where there has been a loss of tax and

  • a person has failed to notify liability to register for VAT, or
  • a non-taxable person has failed to notify HMRC for VAT purposes about the acquisition in the UK from another EU member state of

    • goods subject to excise duty, or
    • a new means of transport.

The 20-year time limit applies in all cases where there has been a loss of VAT due to a failure to make an appropriate disclosure. There is no equivalent reasonable excuse provision similar to that for direct taxes. However, there are transitional provisions that apply where you use the 20-year time limit to make an assessment for a relevant tax period ending on or before 31 March 2010.

Exception

If you rely upon the 20-year time limit to assess a prescribed accounting period ending on or before 31 March 2010 to recover tax lost because;

  • the person failed to comply with a notification obligation, or
  • the person failed to comply with an obligation regarding a designated avoidance scheme

you can only do so if the failure gives rise to a penalty. The penalty will be under either VATA94/S67 or FA08/SCH41. There is no such requirement where you use the 20-year time limit to assess a prescribed accounting period ending on or after 1 April 2010.

This exception also applies where your assessment relates to an acquisition, importation or event giving rise to a penalty.