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HMRC internal manual

VAT Assessments and Error Correction

Recovery assessments: Recovery where payment return becomes repayment prior to 26th May 2005

This page is only relevant where a trader has made an incorrect error correction prior to 26th May 2005 where the output tax over-declared was for a sum in excess of the amount of net tax due on the return.

This effectively changes a tax due return into a repayment return.


Step 1

Trader’s return for P03/99 was:

  • Output Tax = £10,000
  • Input Tax = £7,000
  • Net tax due = £3,000 


In March 2000 the trader discovers that he overstated his output tax in P03/99 by £4000 and makes an error correction claim in that sum. The effect of the error is to change the liability for P03/99 to:

  • Output Tax = £6,000
  • Input Tax = £7,000
  • Net Repayment due = £1,000

Step 3

Prior to 26th May 2005 the legal provision for making payment of £4,000 to the trader is a mixture of sections 80 and Section 25 VAT Act 1994. In making his error correction, the trader in effect made

  • a section 80 claim for the £3,000 overpaid to us in error when he submitted his P03/99 return, and
  • made a claim under section 25 for a further credit of £1,000.

Step 4

Following an assurance visit you find that the error correction notification was made in error and you need to make an assessment to recover the £4,000.

Step 5

The provision under which you assess depends upon the provision under which the payment was made. The provision to recover payments made under Section 80 is contained in Section 80(4A). The assessment provision to recover credits which were not properly due is contained in Section 73(2).

Step 6

Hence, in this case, you must make an assessment for £3,000 under Section 80(4A) and an assessment for £1,000 under Section 73(2).

Note: The above example is not relevant where the incorrect error correction was made on or after 26th May 2005.