Assessments, adjustments and demands for tax: Prescribed accounting period to be assessed
The general position
It is a condition of zero-rating that traders must export or remove the goods and obtain satisfactory evidence within time limits set out in Notice 703 - Export of goods from the United Kingdom or Notice 725 - The Single Market. The zero-rated supply is declared on the VAT return covering the time of supply (even though, at this point, the goods may not actually have been exported, or evidence of export is still to be obtained– see VEXP30300). If conditions are not met within these time limits the trader is required to account for output tax in the period in which the appropriate time limit expires. It follows therefore that where a trader has failed to account for output tax the correct period to be assessed is the one in which the appropriate time limit expires. In most cases this will be 3 months from the time of supply.
It is important that the correct accounting period is assessed to ensure that
- the assessment is valid
- the gross amount of tax (GAT) is adjusted correctly for penalty liability purposes
- any default interest is calculated correctly.
Failure to show the customer’s EC VAT number
It is a condition of zero-rating an intra-EC supply of goods that the trader must obtain and show their customer’s EC VAT number on their VAT sales invoice. The requirement to show a valid EC VAT number must be met at the time of supply, and failure to do so means that the supply cannot be zero-rated. In these circumstances an assessment for output tax is to be made under normal tax point rules.
Evidence of a domestic supply
Exceptionally, where a trader is unable to produce any evidence to indicate that a supply involves either an export or removal (eg not even an order from an overseas customer or documentation demonstrating that the trader is actively seeking business abroad), then it should be treated as a normal domestic supply. In such circumstances, the normal tax point rules will determine the prescribed accounting period for any assessment.
Default interest (DI)
Where a trader has not met the conditions for zero-rating within the prescribed time limits and has failed to account for output tax, the charging of DI is usually appropriate for commercial restitution – see Court of Appeal precedent case, Musashi Autoparts Europe Ltd at VEXP90800. However, where we have withheld a repayment claimed until such time as we decide to disallow zero-rating DI should not be assessed because commercial restitution does not apply.
Further guidance on export and removal related assessments is given in the VAT Assessments and Error Correction (VAEC) manual, guidance on penalties and interest is in the VAT Civil Penalties (VCP) manual.