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HMRC internal manual

VAT Assessments and Error Correction

Demand for VAT: Recovering a debt to the Crown: Recovery powers

If a taxable person, that is, one who is registered or required to be registered, charges VAT on an invoice, it is more likely than not that he will have accounted for, or will account for that tax on a tax return.

Failures to do so will normally mean he can be assessed under section 73 VATA 94, provided assessment time limits are not breached. Schedule 11 paragraph 5 is not to be used to recover amounts of VAT that are out of time to be assessed.

Where VAT has been charged wrongly on a supply by a taxable person, this has been shown as VAT on an invoice but has not been accounted for as VAT by the taxable person, no assessment can be made under section 73 as there is no VAT due.

However, Schedule 11 paragraph 5 can and should be used to protect the revenue where the amount shown as VAT could be used to support an input tax deduction by the customer. Here, the use of Schedule 11 paragraph 5 is not subject to a time limit.

You may encounter circumstances where it would be appropriate to raise a demand on a taxable person under Schedule 11 paragraph 5.

For example, where a supply was treated as exempt more than four years earlier, a taxable supplier may, on learning that the supply was in law liable to VAT at the standard rate, issue an invoice to enable the customer to take input tax deduction years after the supply took place.

In such circumstances, the neutrality of the tax would be disturbed to the Exchequer’s detriment if the supplier refused to account for all or most of the tax, it being due more than 4 years earlier, whilst the customer is entitled to take a full deduction.

To ensure equity of treatment, officers should contact Tax Administration, Litigation and Advice (TALA), see VAEC0150, in any case where, exceptionally, a demand under Schedule 11 paragraph 5 is to be issued to a taxable person.