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HMRC internal manual

VAT Assessments and Error Correction

Demand for VAT: Recovering a debt to the Crown: The law regarding recovery

Schedule 11 paragraph 5 VAT Act 1994 provides power to recover as a debt due to the Crown, an amount charged on an invoice as VAT whether or not VAT was chargeable. This section provides guidance on the circumstances where we will apply this power and the associated procedures.

The VAT Act 1994 Schedule 11 paragraph 5(2) provides that, where an amount is charged as VAT on an invoice, that amount, whether shown separately as VAT, or included in a VAT inclusive total, is recoverable from the person who issued the invoice.

This is backed up by paragraph 5(3)

Paragraph 5(3)

‘5(3) Sub-paragraph (2) above applies whether or not-

(a) the invoice is a VAT invoice issued in pursuance of paragraph 2(1) above; or

(b) the supply shown on the invoice actually takes or has taken place, or the amount shown as VAT, or any amount of VAT, is or was chargeable on the supply; or

(c) the person issuing the invoice is a taxable person;

and any sum recoverable from a person under the sub-paragraph shall, if it is in any case VAT be recoverable as such and shall otherwise be recoverable as a debt due to the Crown.’

It follows then, that it doesn’t matter whether a supply has taken place or, if there was a supply, that it was taxable or if the invoice issuer or supplier was a taxable person. If the sum due is VAT, it is recoverable as VAT. If it is not VAT, it is recoverable as a debt due to the Crown.

If either of the conditions at schedule 11 paragraph 5(3) (b) or (c) is not met, the sum recoverable under paragraph 5(2) is not tax as defined by Section 4 of the Act.

The practical effect of this is that normal assessment and enforcement procedures must not be used.

If you become aware that a sum has been charged incorrectly as VAT on an invoice issued by an unauthorised person, you should consider taking recovery action under Schedule 11 paragraph 5 against the issuer of the invoice, in accordance with guidance VAEC9630.

Where a registered customer has received a supply and acting in good faith has reclaimed as input VAT, a sum incorrectly charged by an unauthorised person, a concessionary relief may apply in respect of the customer. This is covered in detail at VAEC9670.