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HMRC internal manual

VAT Payments on Account Regime

Reconsideration of the value of POA instalments: Reduction of POA instalments

Businesses may request reductions of their POA instalments for a variety of reasons, which can include:

  • an anticipated reduction in future trading
  • one-off transactions
  • Officers’ assessments under appeal.

The POA instalments can only be decreased if you have been satisfied that the VAT liability will be 80 per cent, or less, of the value on which the instalments were calculated. This is covered by VAT (Payments on Account) Order 1993, article 13.

All requests for reduction are dealt with by POA Team (see VPOA1500) and cannot be agreed locally.

Anticipated reduction in trading

Under the VAT (Payments on Account) Order 1993, article 13(b), if a business is able to satisfy the Commissioners that in the coming year its VAT liability will be 80 per cent, or less, of the value that its POA instalments were calculated on, it may request a reduction.

A reduction may be due, for example, to changes in the VAT treatment of its sales, or a reduction in the size of the business.

One-off transaction

Businesses can request that a sale of a large capital item is not used in the calculation of their POA instalments.

Only supplies that are outside the normal trading activities of a business may be excluded from the calculation.

Example 4

A property business may sell a property resulting in a large VAT bill. As the sale of the building is part of the business’s normal trading practice, it is not a ‘one-off’ transaction.

However, if a hotel company sold one of its hotels, then this could be a one-off transaction and a reduction in POA instalments may be considered.

Remember that a business may use a large sale to finance other aspects of the business, which may have increased its VAT liability - as such it may not meet the criteria required to have its instalments reduced.

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Officers’ assessments (OAs)

Some businesses may have OAs under appeal, which form part of their POA instalment calculations. Any request to reduce the POA instalments based on the appeal should be considered carefully.

If the VAT is due, it will form part of the instalment calculation. However, unless the appeal is aimed at delaying payment, such assessments may be excluded from the calculation of instalments.

Note: the officers’ assessments are still used to decide if the business is liable for POA (see VPOA2200).

Example 5

A business has a VAT liability of £4 million for the year to September 2016. £3 million of this liability relates to OA’s under appeal. The business must remain on POA until the appeal has been considered. However, he can apply to have his POA instalments based on £1 million.