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HMRC internal manual

VAT Assessments and Error Correction

From
HM Revenue & Customs
Updated
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Demand for VAT: Recovering a debt to the Crown: Concessionary relief for VAT incurred by customer by non registered supplier

If a VAT registered customer has treated as input tax, an amount charged incorrectly as VAT on an invoice issued by an unauthorised person and deducted it in good faith, and providing a supply has taken place, recovery from the customer of the amount deducted may be remitted and the amount pursued from the supplier.

Extra Statutory Concession No 3.9 says

“Where an amount is shown or represented as VAT on an invoice issued by a person who is neither registered nor required to be registered for VAT at the time when the invoice is issued,”

 It then goes on to say (for the customer concession)

“Where such a person has made a supply to a taxable person and, on the invoice, showed or represented an amount as VAT, the recipient of the supply has no legal entitlement to treat that amount as his input tax. If it is clear that the taxable person who received the supply has treated such an amount as input tax in good faith, action to recover the amount so deducted may be remitted on the grounds of equity.”

Approval of this concessionary relief is delegated to operational units and should be authorised using locally agreed levels.

If a concession is granted to a customer, you should normally notify the relevant VAT office so that they can note the customer’s Electronic Folder records in case they were considering assessment action, for example as a result of an assurance visit. However, if there are numerous small customers or the amounts involved are insignificant, line management may decide that this is not necessary.