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HMRC internal manual

VAT Refunds

Introduction to VAT refunds: What is not an error

It is very important to note, that there is case law on what is not an error - see Victoria & Albert Museum Trustees -v- CCE [1996] STC 1016; [1996] BVC 366. 

In that judgment it was held that where a trader, using a partial exemption method, deducts input tax on the basis of one calculation and then discovers that, if he used another calculation which would also give a fair and reasonable result, his input tax recovery rate would be increased, the ‘shortfall’ declared under the former method is not an underclaim of input tax.

It is not an error and cannot be reclaimed under Regulation 29 of the VAT Regulations 1995 or corrected under Regulations 34 and 35 (for guidance on regulations 34 and 35 see the VAT Assessments & Error Correction Guidance Manual).

The same is true of retail schemes. The fact that the trader paid more in output tax under the scheme he was using than he would have had to do if he’d used another scheme does not mean that he has made a mistake. He may have made an error of judgement but he has not made a mistake that will entitle him to make a claim. There is no overdeclaration of output tax and no claim under Section 80.

The following, if done properly and at the right time, are not the correction of errors and will not lead to claims either under Section 80 of the VAT Act 1994 or under Section 25 of the VAT Act 1994 and Regulation 29 of the VAT Regulations 1995:

  • retail scheme annual adjustments, or other adjustments required when a person stops using a particular retail scheme,
  • adjustments under the Capital Goods Scheme,
  • an approved estimation procedure,
  • partial exemption adjustments,
  • partial exemption clawback and payback adjustments,
  • exports and intra-European Community supplies of goods,
  • issuing or receiving credit and debit notes,
  • claims for bad debt relief, and
  • pre-registration and post deregistration expenses.