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HMRC internal manual

VAT Assessments and Error Correction

Prime assessments procedures: Application of the inflated assessment regime

A trader will enter the inflated assessment regime (IAR), see VAEC2240, when a prime assessment is due for issue and paid prime assessments are present in any two of the previous four periods.

Traders will not be advised separately of their entry to the IAR and the inflation amount will not appear separately on assessments or computer outputs.

Calculation of the inflation factor

The first assessment issued following entry into the IAR will be inflated by 20%. Inflated assessments of less than £10 will be uplifted to a £10 de-minimus assessment. Subsequent assessments will be inflated by additional factors of 20% until a maximum inflation of 100% is reached.

When an automatic prime assessment has been inflated by 100%, a D1430 advice is produced by the computer and sent to the local office.

This form advises the local office to visit the trader in order to obtain the true liability. At this stage, whether or not the trader has paid the previous prime assessments, it can be assumed that there is an under-declaration of tax. If the trader is to be visited, see VAEC2580.

Reduction of inflation factor

For a trader remaining in the IAR the inflation factor will revert to a minimum of 20% if

  • a return is present for the period immediately preceding the period being assessed or,
  • the assessment is being based on an amount which can be regarded as a true liability, e.g. an assessment plus an additional assessment

Exit from the IAR

A trader will leave the IAR if

  • four consecutive returns are present for the periods immediately prior to the one being assessed or,
  • the local office input a form VAT717 (Cancellation of Inflated Assessment Factor) prior to the enforcement run.

The local office may make a prime assessment for a trader in the IAR. The amount calculated as due should be inflated by the appropriate inflation factor.

An inflated assessment should not be used as the base figure for calculating other assessments.

Note: Deregistered traders are excluded from the IAR even though the IAR Indicator remains set.