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HMRC internal manual

VAT Refunds Manual

What can be claimed

Section 80 of the VAT Act 1994 and regulation 29 of the VAT Regulations 1995 set out what may be claimed for refund.

Section 80 general

During the course of verification of the claim, you will need to establish

  • the total amount of output tax over-declared (within the scope of the claim)
  • the total amount of any output tax under-declared in the accounting periods covered by the claim
  • all of the input tax wrongly deducted in the prescribed accounting periods for which the claim was made, and
  • all of the unassessed liabilities that will be required to be set off under Section 81(3A).

We will normally only take unassessed liabilities into account where we take the view that the claim is abusive – see section A11 of this guidance.

The unassessed liabilities that must be disclosed include

  • any over-claim of input tax in the accounting periods not covered by the claim (even where those periods are out-of-time for assessment at the time when the claim is made or paid) where the input tax deduction was made on the basis of the same mistake that gave rise to the claim;
  • any amount (whether relating to input tax or output tax) that could have been assessed as VAT, interest, surcharge or penalty (even if it’s now out-of-time) for whatever accounting period provided that any assessment would have been founded on the same mistake that led to the claim.

The claimant is not required by regulation 37, etc. to provide everything listed above with his claim. If the claim meets the criteria in regulation 37 of the VAT Regulations 1995, it is a valid claim.

Before the claim is paid, you should check that no further liabilities have arisen since the claim was made. You might mention to the claimant that failure to disclose other errors in the accounting periods claimed for could lead to a penalty for the commission of a careless or deliberate error under the terms of Schedule 24 to the Finance Act 2007.

You will find further details on the policy on set-off between taxes and the mechanics of accounting for it in the Debt Management & Banking Guidance, see DMBM700000.

Section 80 – Subsection (1)

This covers claims made to recover amounts

  • over-declared as output tax on a VAT return. The most common generators of such claims are judgments of the courts holding, for example, that a given supply is not subject to VAT at the standard rate but at the zero rate
  • of output tax over-declared as a result of a failure to make an adjustment under Regulation 38 of the VAT Regulations 1995 - see the decision of the VAT & Duties Tribunal in General Motors Acceptance Corporation (UK) Plc (VAT Tribunal Decision 19989; [2007] BVC 2302 - paragraphs 75 to 77 and that of the Upper Tribunal in CRC –v- Iveco [2016] STC 1754, paragraphs 16 to 29.

For example:

Anton Ltd supplied an E-Type Widget to Berta Ltd for £100 plus VAT (£17.50). Six months later, Anton Ltd reduced the price of the widget to £50 and issued a credit note to Berta Ltd for £50 plus £8.75 VAT.

Regulation 38 requires that Anton Ltd reflects that adjustment in the next return after the change of consideration was entered in the business records. If that isn’t done, the return is in error because it includes an amount declared as output tax that wasn’t due as such. The result is that Anton Ltd has a claim under Section 80(1) of the VAT Act 1994.

Section 80 – Subsection (1A)

This allows traders to claim amounts paid pursuant to assessments for output tax where the assessment turns out to be for an amount that was not due as output tax.

That includes the situation where a taxable person discloses an amount as being an under-declaration of output tax, we make an assessment for that amount which is paid and it later turns out that the disclosure was wrong.

For example, if a taxable person, who has been treating his supplies of widgets as exempt of VAT, is assessed for output tax on those supplies and it later turns out that he was treating them correctly, he can make a claim to recover the amount he paid pursuant to that assessment.

This applies equally where HMRC makes the assessment as a result of a disclosure made by the taxable person.

Section 80 – Subsection (1B)

This allows traders to recover amounts

  • of output tax that have been overpaid, for example, as a result of a return being paid twice
  • paid on assessments for amounts thought to have been incorrectly deducted as input tax.

For example, HMRC make an assessment against a taxable person on the grounds that he has deducted too much input tax and the taxable person pays that assessment. If, within the statutory time limits, it turns out that the assessment was wrong and that the taxable person ought not to have paid it, he can make a claim to recover the amount he paid on the assessment.

This subsection essentially covers all overpayments of VAT that are not covered by subsections (1) and (1A) of section 80 or by regulation 29 of the VAT Regulations 1995.

Claims under this subsection cannot be refused on the grounds of unjust enrichment.

Regulation 29 VAT Regulations 1995

This allows a VAT registered person, subject to the partial exemption and Capital Goods Scheme rules, to deduct or claim any input tax that he has incurred in the course and furtherance of his taxable business activities - see the guidance in the VAT Input Tax manual for details on who can deduct input tax and under what circumstances.

In practice, we would expect any late claim submitted under regulation 29 to set out the total amount of input tax under-claimed and all other errors in the accounting periods covered by the claim.

It is important to remember that any claim for input tax in relation to any given accounting period can only be for the input tax that that person would have been entitled to deduct from his output tax liability and – unless the supply was zero rated – the output tax relating to the supplies for which the late claim to input tax is made must have been declared and accounted for to HMRC.

If he has not declared, or has under-declared, any output tax liability for the accounting period(s) under-claim, he will only be able to claim input tax for that accounting period (those accounting periods) to the extent that his unclaimed input tax entitlement exceeded his undeclared output tax liability.

This is not a set-off within the scope of section 81 of the VAT Act 1994 and the character or nature of the mistake or mistakes that led to the under-declaration of output tax liability and the understatement of input tax entitlement is irrelevant. It is simply a question of what the taxable person is entitled to claim by way of a late claim for input tax or VAT credit.

It is also important to remember that a claim under Regulation 29 in respect of a given accounting period is a claim for the difference between what the claimant deducted for the accounting period and what he was entitled to deduct. Thus, if the records for an accounting period show that the claimant failed to claim input tax to which he was entitled and also deducted as input tax amounts that he was not entitled to, the claim should take both into account.