VRM8400 - Time limits: capping of late returns

General

Returns submitted late are not generally capped but the action you will need to take in relation to late returns which are received more than four years after the end of the relevant accounting period will depend on the circumstances.

Generally speaking late returns will be processed and subject to normal checking and adjustment procedures. However, the only way for a trader to recover an amount wrongly paid on an assessment (including prime and additional assessments) is to make a claim under Section 80(1A) of the VAT Act 1994.

Any such claim made more than four years after the end of the accounting period in which the assessment was made is capped under Section 80(4)(a).

Payment returns where the VAT return declared liability accepted by HMRC is less than the assessed amount

A business which fails to submit a return normally gets a prime, or centrally issued, assessment shortly after the due date of the return in question. Where a business pays that assessment and then later submits the return for the accounting period in question, the action that you take will depend on the circumstances.

Where the amount assessed is higher than the liability declared on the return, and we accept that the declared liability is correct, recovery of the excess will be capped by section 80(4)a) of the VAT Act if more than four years have passed since the end of the accounting period in which the assessment was made.

For example,

Able Ltd does not submit its VAT return for accounting period 03/17 and a centrally issued assessment is made on 20 May 2017 for £20,000.

Able Ltd pays that assessment on 15 June 2017. On 12 July 2021, Able Ltd submits the return for accounting period 03/17 which shows the true liability to be only £15,000.

Having paid the assessment, the only way that Able Ltd can recover that £5,000 is to make a claim under Section 80(1A) of the VAT Act 1994. Any such claim has to be made within four years of the end of the accounting period in which the assessment was made.

In this example, as the assessment was made during accounting period 06/17 a valid claim under Section 80(1A) must be made by 30 June 2021.

That applies equally where a centrally issued assessment is made and paid and it turns out that the return submitted late for the accounting period in question was a repayment return - see the decision of the VAT & Duties Tribunal decisions in Bissell Homecare (Overseas) Inc (VAT Tribunal Decision 18217) and Brian Elton Cox (VAT Tribunal Decisions 18709 and 18990).

Payment returns where the VAT return declared liability accepted by HMRC is greater than the assessed amount

If a return is submitted more than four years after the end of the accounting period in which a centrally issued assessment was made, and that return shows a net payment due to HMRC which exceeds the amount paid on the assessment, the return and any payment of the balance due should be accepted or enforced in line with normal procedures.

Where the late return accepted by HMRC is a repayment return

Where no central assessment was issued, if a late return shows a net repayment due to the business, the return should, if agreed by HMRC, be accepted and the net amount claimed on the return should be repaid, subject to verification, adjustment or denial of a VAT credit as normal.

However, where a central assessment was issued, any assessed amount which was paid more than four years earlier should not be repaid because it is considered to be an overpayment by way of VAT which is capped under Section 80(4) of the VAT Act 1994.

For example,

Baker Ltd fails to submit a return for accounting period 06/16 and receives and pays a centrally issued assessment for £20,000.

In 2021, the company submits its return for that accounting period and it turns out to be a repayment return for £30,000. That VAT credit should be paid subject to verification as normal. However, the £20,000 paid by Baker Ltd on the assessment should not be repaid.

Action required to stop repayments

To stop repayment of any amount claimed on a late return in accordance with the guidance above, you should ensure that repayment inhibit is on-file.