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HMRC internal manual

VAT Refunds

Four year cap - other provisions: Regulation 115 - Capital goods scheme adjustments: Operation of the time limit

Regulation 115 of the VAT Regulations 1995 is one of the provisions covering the capital goods scheme (CGS).

It deals with the method of adjustment and applies to ‘subsequent’ intervals (input tax deduction in the first interval is dealt with under the normal partial exemption rules). In this regulation a taxable person making an adjustment in respect of a subsequent interval does so on a specific return (the ‘specified’ return).

The specified return is the return for the second prescribed accounting period after the interval to which that amount relates, unless the Commissioners allow another return to be used - see the VAT Partial Exemption Guidance (PE4800) for guidance on operation of the CGS.

In theory the Commissioners could allow any return to be used for this purpose. Regulation 115(8) restricts that discretion so that the Commissioners can only allow a return other than the specified return to be used, if it is the return for a prescribed accounting period commencing within four years of the end of the accounting period to which the specified return relates.

Thus, if a trader fails to make a CGS adjustment at the right time (i.e., on the specified return), the Commissioners would only allow him to use a subsequent return to make the adjustment if it is made within four years from the end of the accounting period in which the adjustment should have been made.

Normally, we only allow a return other than the specified return to be used in cases where the taxable person is unable, for some accounting reason, to use the specified return - for guidance on this see the Partial Exemption Guidance manual.