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VAT blocks | accountingweb | Change to central assessment process for late VAT returns
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HMRC changes late VAT returns assessment process

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HMRC is changing the central assessment process for late VAT returns. Hilary Bevan explains why taxpayers should keep detailed records and act promptly.

26th Sep 2023
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Where a taxpayer fails to file a VAT return by the due date, a central assessment will be raised automatically by HMRC’s system. That assessment is sent to the taxpayer and the amount payable is shown as outstanding on their VAT account.

The assessment is an estimate of the VAT that would have been payable had the return been submitted.

When the actual VAT return is subsequently filed, the assessment is cancelled.

Level of the assessment

Often, assessments are higher than the VAT actually payable, so the taxpayer has an incentive to submit the VAT return as soon as possible to avoid being chased for the higher amount.

In some cases, the assessment will be lower than the VAT actually payable. A taxpayer in this situation may be tempted to pay the lower assessment rather than submit the VAT return crystalising the higher figure.

To prevent this, there is additional legislation that means that where the taxpayer does not notify HMRC within 30 days that the assessment is too low, they are liable to a penalty of up to 30% of the difference between the amount on the assessment and the actual VAT liability.

Cancelling central assessments

Until now, advice to taxpayers has been to submit the actual VAT return as soon as possible, at which point the assessment will be cancelled and removed from the VAT account by the next working day.

HMRC has now confirmed that this approach has been changed.

Under the new process, the central assessment remains on the account until the late-filed VAT return has been fully processed. If the VAT return is subject to compliance checks, the central assessment will not be removed from the VAT account until all of the compliance checks are complete.

Seeing this in action

I had a client who was in a VAT repayment situation. Their first VAT return was submitted late and a central assessment was raised automatically by HMRC.

The taxpayer submitted the VAT return to HMRC and a week later an HMRC officer turned up saying that he was there to seize assets because of non-payment of the VAT assessment.

When my client told the officer that the VAT return had been submitted, and no VAT was owed, the officer claimed that it was not showing up on his system. The taxpayer had to show him the screenshots and reference numbers from their VAT return submission to prove that the return had gone in.

Three days later, the client received a letter from HMRC saying it wanted to carry out a compliance check on the first VAT return before it could be processed. Presumably, it was because of those checks into the first VAT return, that the assessment was still showing as live on the HMRC system and was therefore being chased.

While this is (hopefully) an extreme case, it does demonstrate the issues that may arise as a result of this policy change.

Advice to taxpayers

If a taxpayer receives a central assessment, their priority should be to try to submit the outstanding VAT return as soon as possible.

If cash flow allows, it may be advisable to pay the assessment. If it is higher than the amount of VAT actually due, HMRC should repay the difference once the VAT return has been processed. Making the payment will reduce the potential for penalties and should prevent the HMRC debt management team from turning up to seize assets.

In all cases, taxpayers should be advised to keep detailed records and screenshots of when the VAT return was submitted, just in case this is needed to show HMRC.

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Replies (12)

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By JCresswellTax
27th Sep 2023 10:01

Do HMRC sit round a table and think of ways to make their processes worse?

It's actually incredible how they continue to do this. If I was older I'd retire, its a joke.

Thanks (12)
Morph
By kevinringer
27th Sep 2023 10:05

I've got a repayment case that was so late filing their VAT return that not only were they charged an assessment, they were also charged a late payment penalty. The VAT return was submitted and it appeared on the account, but the assessments remained for some time, though their status changed to "your client paid to HMRC" even though my client never paid them. The repayment has been paid to my client. That was months ago. Today those assessment have disappeared, but the late payment penalty charge is still shown under "your client paid to HMRC" column, but my client has never paid it.

Thanks (1)
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By WallyGandy
27th Sep 2023 10:54

HMRC continue to tinker further "internal procedures" to the detriment of all classes of UK Taxes whilst failing to deal with core issues such as the increasing backlog of mail, the ever-worsening telephone contact etc etc.
When submitting CT600 at 6:00pm yesterday TaxCalc reported the HMRC computer was logjammed and could not send a response. (Went through 15 mins later)
We habitually file away from what is regarded as peak times.... enough said.

HMRC seem to be "doing a Nero" with violins in every nook and cranny. Little or no respect now.

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Replying to WallyGandy:
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By murielmcilhagga
01st Oct 2023 22:23

Very well said

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By KateR
27th Sep 2023 11:06

Perhaps HMRC should apply some of this energy to processing VAT registration applications. All poised and ready to fill in first VAT return for a client but still waiting for registration certificate for an application submitted on 10th June.

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Replying to KateR:
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By bendybod
27th Sep 2023 11:56

Agree. I'm waiting for a decision on a VAT exception from registration request.

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Replying to bendybod:
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By KateR
28th Sep 2023 09:34

Good luck with that. Last one I did took nearly two years to be agreed, by which time client (who works in the film industry and ricochets between employed/self employed contracts) had been on PAYE for a year.

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By petestar1969
27th Sep 2023 12:34

Just file the VAT returns when due, ideally a few days before the deadline. Not difficult is it?

Thanks (1)
Replying to petestar1969:
Morph
By kevinringer
27th Sep 2023 12:51

I think the problem is repayment traders who for the last 50 years have not been penalised for late submission of VAT returns. HMRC didn't bother raising assessments as HMRC seemed to be content with repayment traders taking as long as they wished to file. It's only this year that I've seen HMRC raising assessments for repayment traders. Because repayment traders have been permitted to be lax filing their VAT for 50 years, it's taking time for some to get used to filing on time. I know they should always have filed on time for cashflow purposes.

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Replying to petestar1969:
By JCresswellTax
28th Sep 2023 13:47

petestar1969 wrote:

Just file the VAT returns when due, ideally a few days before the deadline. Not difficult is it?

Great idea Pete, you ever thought about working for HMRC with those ground-breaking thoughts?

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By JackH
27th Sep 2023 13:58

Wait until AI raises the assessments, does the checking, and sends out the Bailiff Robot

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By KeyAccountancy
03rd Oct 2023 17:25

We’ve a repayment case where the assessment notice was raised the day after the registration was processed, both were received by the client on the same day! 6m later the repayment claim is still “under review” as it took 4m for them to even contact the client for the information - unfortunately it doesn’t look likely that this is an isolated incident or even that things at HMRC will improve anytime soon

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