HMRC changes late VAT returns assessment processby
HMRC is changing the central assessment process for late VAT returns. Hilary Bevan explains why taxpayers should keep detailed records and act promptly.
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.
You might also be interested in
Hilary Bevan has over 20 years of experience working in accountancy and tax. She is a qualified chartered certified accountant as well as a chartered tax adviser and an associate of the Institute of Indirect Taxation.
In 2018 Hilary set up her own independent consultancy firm, providing specialist VAT advice to firms of accountants and...