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HMRC internal manual

VAT Traders’ Records Manual

HM Revenue & Customs
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Credit and Debit notes: When Regulation 38 does not apply

Regulation 38 does not apply and so there is no obligation to make a Regulation 38 adjustment when:

  • an invoiced supply does not take place;
  • VAT should not have been charged at all (e.g. an exempt or zero-rated supply has been erroneously treated as standard rated);
  • VAT was charged at the wrong rate (e.g. at the standard instead of reduced rate), but the underlying value of the amount on which VAT continues to be due has stayed the same;
  • an invoice has simply under or overstated the VAT amount; or
  • the liability is corrected following a change of rate (see VATREC13110).

In these circumstances the error correction and claims Regulations apply (e.g. Regulations 34, 35, 37 or 29(1A)) and any claim for refund of overpaid tax should be dealt with in line with guidance in VAT Refunds Manual. The normal four-year capping rules apply in these cases as explained in Notice 700/45 How to correct VAT errors and make adjustments or claims. Failure to correct the VAT position may result in an assessment.