Understanding VAT Assessments | Time Limits Explained
HMRC will conduct a formal Value Added Tax (VAT) evaluation and/or investigation to establish the correct tax liability of a trader. This is usually conducted where HMRC suspects that there is a discrepancy between the VAT a business has declared and what they believe is due.
Thereafter, if HMRC believes there has been an underpayment of VAT, it will issue a VAT Assessment to determine the amount due to the Crown. If the amount of the assessment is disputed, it must be appealed within thirty days, otherwise, HMRC will proceed with measures to recover the debt.
HMRC is obliged to raise its assessment within the prescribed statutory period, a requirement emphasised in the recent case of Monmore Properties Ltd [2024] TC 09072. In this case, the First-tier Tax Tribunal upheld the appeal against five VAT Assessments which were time barred when raised by HMRC.
In that case the Judge stated:
“tax is undoubtedly due and would have been payable had an Assessment been raised timeously. The simple fact is that it was not.”
This Judgment is of relevance to anyone who has received a VAT Assessment from HMRC who believes it was raised out of time. Upon receipt of a VAT Assessment from HMRC, it is essential to ensure that it relates to the relevant VAT period and is for the correct amount.
Naz Maqsoom of KANGS comments generally upon time limits affecting HMRC assessments.
Time Limits for VAT Assessments
HMRC is restricted by statutory time limits for making a VAT Assessment to ensure that it does not issue a demand for under-declared or over claimed tax once that prescribed period has elapsed.
The Value Added Tax Act 1994 (‘the Act’) provides:
Section 73 Failure to make returns etc.
If a person fails to submit any returns, maintain necessary documents, or provide the required facilities to verify those returns, or where it appears to the Commissioners that the returns are incomplete or incorrect, they may assess the amount of VAT due based on their best judgment and notify the person accordingly.
Where there has been a repayment or refund of VAT or a credit made which ought not to have been paid or credited, the Commissioners may assess that amount as being VAT due for repayment and notify the taxpayer accordingly.
An Assessment of an amount of VAT due must be made within the limits provided for in section 77 and shall not be made after the later of:
- two years after the prescribed accounting period or
- one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge
but where such further evidence comes to the Commissioners’ knowledge after the making of an assessment, another assessment may be made in addition to any earlier assessment.
Notification of VAT Assessments
The Act prescribes time limits only for the making of an assessment. It does not prescribe time limits for the notification of a VAT Assessment.
The basic rule is that HMRC has a maximum of four years from the end of the VAT period in question to issue a valid Assessment. This period is extended to twenty years in the case of fraud.
Once HMRC has completed its inspection and has the information to calculate an Assessment, it must prepare and issue it within twelve months, failing which it is out of time. Any Penalty Notice must also be served within two years of deciding how much tax is owed.
It was common for HMRC to determine the value of an Assessment, complete, date, and sign the notification form, but then fail to send it within the one-year time limit. Despite this delay, HMRC would argue that the Assessment complied with the requirements and was not out of time.
However, HMRC now acknowledges that it must notify the Assessment within the one-year time limit and the case of Monmore Properties Ltd mentioned above will clearly have been taken into account.
There is no specific manner in which an Assessment has to be made and notified. However, Case Law has determined that a letter which clearly contains the decision to assess and provides details of the amounts outstanding for each VAT period will suffice.
How Can We Assist?
HMRC cannot issue an Assessment for more than the previous four years and once it possesses the necessary information required to prepare an assessment, it must be issued within twelve months.
If you have received a VAT Assessment from HMRC, it is imperative that all details are carefully checked to ensure that, amongst other things, the relevant VAT periods calculations are correct.
In any event, it would always be prudent to seek legal advice upon receipt of an Assessment or Notice from HMRC that suggests a potential dispute. The Team at KANGS has extensive experience successfully assisting clients in various disputes with HMRC and would be delighted to assist you.
Our Team will support you throughout the entirety of any HMRC investigation or proceedings, seeking to achieve the most satisfactory outcome available as quickly and economically as possible.
If we can be of assistance, please do not hesitate to contact our Team using the details below:
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.
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