Repayment Supplement – important development

Les Howard
VAT Consultant
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The VAT Repayment Supplement (RS) ‘punishes’ H M Revenue & Customs when they fail to process or action a Repayment Return in a timely fashion.  They have 30 days from the receipt of the Return or claim to issue an (internal) instruction to make the payment to the taxpayer. The statutory reference is the VAT Act 1994, s79, and HMRC Notice 700, para 21.6; and Notice 700/58. RS is currently 5%. The RS is a ‘spur to efficiency.’

In cases where checks have to be made to verify the figures, HMRC are allowed to ‘stop the clock.’ This means that the 30 day limit is extended while HMRC make reasonable enquiries.

HMRC have long held that the RS can only apply where a Return is repaid late; and they have stated that only types of claim, such as Voluntary Disclosures, cannot be eligible for an RS if paid late. This is now changing.

A recent case involved a wholesaler / exporter of mobile phones. A previous Tribunal was heard the substantive case in 2007 and 2008 which concluded that input tax claims, totalling over £20million, were valid. HMRC had originally suspected fraud (as is often the case in transactions involving mobile phones), but the Tribunal found in favour of the taxpayer, and allowed the Appeal. The taxpayer company then claimed RS in respect of the late payment of the input tax, both on Returns and Voluntary Disclosures.

HMRC insisted that RS applied only to the Returns, and refused RS in respect of the Voluntary Disclosures. The difference was £74,000.

The Tribunal highlighted the fact that s79(2)(a) refers to a ‘return or claim.’ The Tribunal stated that this wording is clear, and RS cannot be restricted solely to VAT Returns.

At the time of writing, there is no reason why other claimants should not re-visit claims for VAT credits, and submit claims for unpaid RS. The claim is required to be submitted within the relevant time limit (4 years for a Voluntary Disclosure), and must be accurate to within 5% or £250 of the true amount. It should be said that HMRC Notice 700/58 is now incorrect, as it refers only to RS in respect of VAT Returns.

(It may be that HMRC will seek to appeal the decision. At the time of writing, I have not seen any such announcement.)

{The case is: Our Communications Ltd TC/2011/08992; see

About Les Howard


Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire

I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.


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09th Jan 2013 09:47

A slight note of caution

Useful information from Les.

Legal advice I have seen however suggests that RS and statutory interest can't both be paid, and so,  if a claimant who received a large SI refund asked HMRC for RS on a claim because they took ages to pay, HMRC could potentially seek to replace the SI with RS.  Many 'Fleming' SI payments were the same value or more of the tax, and so a 5% addition compared to 100% or more might seem attractive to HMRC!

For claims where the taxpayer was at fault however, there are no apparent issues, so long as the 5% rule is met in terms of the eventual refund.

This has always been a bone of contention, that HMRC could effectively sit on a claim, so it is useful to have another weapon in the armoury to push HMRC along!

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21st Jan 2013 17:43

... not wanting to appear cynical, but...

I am increasingly finding that HMRC are successful able to defer making VAT repayments whilst avoiding paying out RS.

The scenario is this; Client submits Repayment Return or other claim. HMRC send notification that the repayment must be verified before it can be repaid. They follow up the letter with a separate letter to arrange a visit. Typically, such visits are then booked 2-3 months ahead. This means that the repayment is not even processed until 3-4 months, assuming it is agreed. (One case, on my desk today, was submitted in September 2012, and the visit will be in late February 2013, a five month delay.)

The delay whilst waiting for the visit falls within the 'raising and answering of any reasonable inquiry,' which allows HMRC to extend the 30 day legal time limit.

One a case-by-case basis I don't think that much can be done to speed up such claims. However, I am concerned at what appears to be HMRC policy to delay making such repayments.

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20th Feb 2013 10:10

New Development

I am disappointed to learn that HMRC have decided to Appeal the Our Communications decision. Apparently they are concerned at a floodgate of claims. My response is simple; if they were to deal with claims promptly and efficiently, then claims would be kept to a minimum. Applications for Repayment Supplement are only made because HMRC are dilatory in their care and management of the tax.

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