Independent VAT Consultant
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VAT: Low assessment is not a get-out card

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A business should always submit its VAT returns on time, even if it can’t fully pay the tax. Accepting a low estimated assessment is not a way out of the VAT pickle. 

23rd Jul 2021
Independent VAT Consultant
Columnist
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What happens if your business fails to submit a VAT return on time? The answer is that HMRC’s central computer will issue an assessment, estimating your liability for the period.

But this can only ever be an estimate: the computer has no idea whether the amount assessed will be accurate, too high or, most importantly, too low. It can only base the assessment on declarations made for earlier periods.

30 days to submit return

HMRC takes the view, quite reasonably, that most prudent business owners will have an approximate idea of how much VAT they will owe at the end of a period, depending on the level of business trading and, for example, whether the business has incurred a large amount of input tax on new plant or machinery.

The worst-case scenario is to accept a low central assessment from HMRC, thinking it is an interest free loan, so to speak. This is because HMRC has the power to issue a penalty in such cases, based on the difference between the actual tax owed and the estimated assessment. The way to avoid a penalty is to submit the return within 30-days of receiving the “too low” assessment (VAT Notice 700/12, para 6.5).

The legislation

The wording in para 2, Sch 24, FA 2007 is very clear: if a taxpayer fails to submit a return and receives an assessment and they “knew, or should have known” that it was too low, then a maximum 30% penalty can be issued by HMRC on the difference. The officer must consider “what steps would have been reasonable to take to notify HMRC.”

Example

  • VAT quarter ended 31 March 2021 - return is due by 7 May 2021;

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By Banuelos522
27th Jul 2021 10:17

Standard practice for imports from abroad, and now the EU is covered in that too.

Some couriers pay the VAT and duty on your behalf to not hold up delivery. Others hold your package until you've paid.

The handling fee they'll charge can probably be challenged (with FedEx if you have a credit account set up, they don't charge their £12 fee), but VAT and duty will have to be paid.

https://www.liteblue.app/

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