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HMRC internal manual

VAT Assessments and Error Correction

Error correction for VAT: Credibility queries: Pre repayment and allowing adjustments

When a pre repayment credibility query is referred to the regional office and the subsequent verification identifies that an adjustment is required, the possible outcomes are

  • a lower repayment becomes due,
  • a greater repayment becomes due or,
  • the repayment return reverts to a payment return.

Where a pre-repayment credibility check reveals that a lower repayment is due, we cannot and do not make an assessment under s73 VATA 1994 as there is no net tax due and none has been credited. Rather a VAT credit under section 25(3) VATA 1994 is being denied.

Section 25(3) says

‘If either no output tax is due at the end of the period, or the amount of the credit exceeds that of the output tax then……the amount of the credit or, as the case may be, the amount of the excess shall be paid to the taxable person by the Commissioners; and an amount which is due under this subsection is referred to in this Act as a “VAT credit”.’

Section 25(3) provides the only powers for repayment of VAT credits. Where an amount is not accepted as a VAT credit, we have no legal powers to make a repayment of VAT and so can not do so.

There is also provision in Schedule 11 paragraph 4(1) VATA 94 to require production of documents before allowing a repayment of input tax. Use of this power is likely to be exceptional and should only be used to withhold identifiable elements of claims that are in dispute.

Schedule 11 paragraph 4(1) says

‘The Commissioners may, as a condition of allowing or repaying any input tax to any person, require the production of such documents relating to VAT as they may specify.’

If a repayment return reverts to a payment return we would disallow the VAT credit under section 25(3) VATA 1994 and make an assessment under section 73(1) for the VAT due amount.

Section 73(1) says

’..where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.’