28 Jul 2016
Q. My client had a VAT inspection on 30th April 2016 and the Officer has subsequently issued an assessment for underpaid output tax for an error that was made in a VAT accounting period that ended in January 2012. My understanding is that a four year cap applies to errors made on VAT returns and that technically the Officer is out of time to assess for this mistake. Please can you clarify the position? A. Most errors identified on VAT visits are assessed under VAT Act 1994 Section 73 and are subject to time limits that are set out in Sections 73 and 77. Unless an Officer can prove dishonest declarations they cannot assess for VAT errors more than 4 years after the end of the prescribed accounting period. Assuming your client’s VAT accounting periods end January/April/July/October to be in time under the 4 year rule the assessment must have been made by 31st January 2016. So, in this case you are correct and the error is out of time. If an error is discovered within the statutory time limits then, in order to go back 4 years, HMRC must assess within one year of obtaining evidence of fact sufficient to justify the making of an assessment. If an assessment is not made within 1 year, HMRC are only entitled to go back 2 years. In the above example, if the Officer obtains all of the information in order to make the assessment during the visit then the assessment must be made by 30th April 2017 in order to go back 4 years from the date of the assessment. If the assessment is not made within 1 year then the officer can only assess for 2 years immediately leading up to the date he issues the assessment. It is important to note that these time limits apply to VAT assessments for inaccurate declarations. The 4 year cap does not apply to late registration and in such cases HMRC is entitled to go back 20 years. Croner Tax advises that, if one of your clients receives an assessment for VAT, not only should you check that the grounds for the assessment are correct (assessments can be issued in error) but also that the assessment is for the correct period and within the statutory time limits. Croner Tax has a team of experts who can help you ensure that an assessment is justified and for the correct time period. We also have a wealth of experience in resolving disputes with HMRC. Please contact one of our VAT consultants on 0844 561 8101 or, for more complex queries, remember that our service extends to a written consultancy service at £180 per hour plus VAT.
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