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HMRC internal manual

VAT Payments on Account Regime

Entering the regime: VAT included in the £2.3 million calculation

All VAT that should have been declared in any period of 12 months will be used to determine if a business is liable for the POA regime.

The VAT liability of £2.3 million includes:

  • all VAT declared, or that should have been declared, on returns, including Officers’ Assessments and Voluntary Disclosures
  • VAT on imports and goods ex-warehouse.

VAT from imports and goods ex-warehouse

Although this VAT is included in the calculation to determine whether a business is liable to make payments on account, it is not used to calculate any subsequent POA instalments. This is because such VAT is already accounted for at entry.

As the VAT is excluded from the instalments calculation, excluding it from the £2.3 million calculation would give importers an unfair advantage over firms that bought from within the EU. You should remember this if you receive any correspondence alleging that the regime penalises businesses that purchase supplies from abroad.

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Officers’ assessments (OA) and voluntary disclosures

These are included in the £2.3 million test, as the VAT should have been declared on the VAT return(s) for the period(s) in question.

Example 1

In the year to September 2016, a business declared a VAT liability of £2 million on its VAT returns. It also has an OA on file for £400,000 for this period. It will be brought onto POA as its total VAT for the year to September 2016 is over £2.3 million.

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Officers’ Assessments under appeal

Some businesses may be brought into the regime as a result of officers’ assessments that are, or become, subject to appeal. This does not prevent inclusion in POA.

If the appeal is successful and as a result, the business was not liable to POA, it should be removed from the regime.

Example 2

A business submits its September return and has an annual liability of £2.4 million; £400,000 of this is an Officer’s Assessment under appeal. The business is brought into the POA regime. In November the business wins the appeal and the assessment is withdrawn. The business’s liability was therefore only £2.0 million in September and it should be removed from the regime, as it was not above the £2.3 million threshold.

However, before the business is removed from the regime, you should consider whether later returns have created a total liability that, discounting the assessment, have made the business liable to POA.

Example 3

The business submits its September return and again has an annual liability of £2.4 million, £400,000 of which is under appeal. The business submits its December return, which takes its liability for the year to £2.8 million. The business wins its appeal in March of the following year. The business was not liable for POA in September (liability £2.0 million). However, in December its liability was £2.4 million so it would have been brought into the regime. The business is therefore liable for POA and must remain in the regime.