Assessments, adjustments and demands for tax: Returns selected for pre-repayment credibility checks
Where a return has been selected for pre-repayment verification, officers must have reasonable grounds for believing that a verification process is necessary. Any decision to embark upon that process must be proportionate and made in good faith and you must ensure that the verification is justified and is not onerous or lengthy. Where verifying a claim which arises because of zero-rate exports, remember:
- traders are allowed specified time (generally three months) in which to obtain evidence of removal or export
- where the conditions for zero rating are not met, output tax is generally accounted for on the VAT return for the period when the specified time limit expires (but see VEXP90300 exceptions).
This means that once an officer is satisfied that the trader is entitled to the input tax claimed on the return, it is not reasonable to withhold the repayment claimed simply to await the expiry of the time limit for meeting the conditions for zero rating. But, withholding such a repayment may be justified in some circumstances in order to protect the revenue.
For example, there may be cases where we have good reason to believe that satisfactory evidence of removal will not be obtained, and therefore an assessment for output tax will be appropriate as soon as the time limit expires. For example, we may know that the purported delivery address does not exist, or that transport evidence held (CMRs, airway bills etc) is false. If repayment is withheld in such circumstances, officers must actively seek information from the trader, and make it clear at the outset that the repayment cannot be sanctioned until documentary evidence of dispatch of the goods has been viewed and assessed by us. The time taken in raising and answering these enquiries will not count against HMRC for repayment supplement purposes provided our action is reasonable and proportionate in all the circumstances.
There is further guidance on the decision to withhold repayment pending verification and on making payments of VAT credits claimed on VAT returns in the VAT Traders’ Records Manual (VATREC). Guidance on repayment supplement is in the VAT Civil Penalties (VCP) manual.
See also the VAT Control Notes: Assurance Techniques for various techniques that can be used to test the authenticity of transport evidence.