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HMRC internal manual

VAT Default Interest Manual

Commercial restitution: Assessments in respect of exports and removals to other EU countries

The background to assessment policy in such cases is as follows. When businesses zero rate goods for export or removal to other EU countries they have 3 months to obtain satisfactory evidence of export or removal. At the end of 3 months if they don’t have sufficient evidence they must declare tax on the supply on their next return. When they receive the evidence they can make another adjustment to zero rate the goods.

Where officers find that a business has insufficient evidence and has not declared any tax they may assess the undeclared tax. The period assessed should be the period when the tax should have been declared not the period when the original supply was made. The assessment is in respect of the failure to declare tax, not the failure to obtain the evidence (a subtle but important difference).

The assessment is not withdrawn when evidence is produced (so any penalty and interest will still stand), instead the business is able to make an adjustment. This is because the business may only adjust for overpaid tax at the time the evidence is available.

Unless there are other reasons to inhibit interest, you should charge interest in such cases. Some businesses argue that where the evidence is later produced interest is not due because the Exchequer is not permanently deprived of the tax. But our view is that the exchequer suffers a loss, from the point the tax should have been adjusted until the time the assessment is made. It is reasonable to impose interest as it represents commercial restitution for this period of time.