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HMRC internal manual

VAT Assessments and Error Correction

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HM Revenue & Customs
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Recovery Assessments: Recovery of incorrectly claimed VAT credit

The legislation which entitles a trader to payment of a VAT credit is Section 25 of the VAT Act 1994.

The payment of a VAT credit usually arises where a trader has submitted a repayment return. Where such a return is found to be in error our recovery power will be Section 73(2) VAT Act 1994.

If, on or after 26 May 2005, a trader discovered an error in any accounting period which has resulted in him claiming too little net credit by virtue of overstating his output tax for that period, any claim for a further VAT credit made by way of error correction, will be a claim under Section 80 VAT Act 1994.

Where such a claim has been credited or repaid but is subsequently found to be in error, our recovery power is Section 80(4A) VAT Act 1994, see VAEC4020.

Where a trader under-claims input tax on a VAT repayment return e.g. due to a mathematical error, any subsequent claim for a further VAT credit should normally be treated as late claim to input tax under VAT regulation 29.

Where a claim has been credited or repaid but is subsequently found to be in error our recovery power is Section 73(2) VAT Act 1994 which is subject to capping time limits, see VAEC4060.

Interest

You may also need to recover any statutory interest which may have been paid in relation to the incorrect VAT credit. Statutory interest is recovered under Section 78A VAT Act 1994 and there is further guidance on this at VAEC4140.