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HMRC internal manual

VAT Refunds

Late claims for input tax: Quantification of a claim: Payments of a claim

There are a number of elements that must be set off under Section 81(3) and (3A) of the VAT Act 1994 and Section 130 of the Finance Act 2008 before the claim is finally paid - see the articles in this guidance on set-off for more details.

Under Sections 81(3) and 130 we are required or entitled to set the following off against amounts due on claims by taxpayers

  • any unpaid assessments (whether for VAT, interest, surcharge or penalty) for any accounting periods;
  • any unpaid VAT returns for any accounting periods;
  • Any outstanding debts in relation to any of the other direct and indirect taxes.

Under Section 81(3A) we are required to set the following against amounts due on claims:

  • any overclaim of input tax in the accounting periods covered by the claim;
  • any underdeclaration of output tax in the accounting periods covered by 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.

As a matter of policy, where a claim is not considered to be ‘abusive’, the Section 81(3A) set-off should only be applied to liabilities in the accounting periods which are covered by the claim.