Double-check demands for underpaid VAT, firms told

Businesses are being warned to check the validity of any assessments they receive for underpaid VAT, amid claims that tax officers are exceeding their four-year ‘look back’ limit.  

In an online post yesterday, tax group CCH said that on recent “occasions” VAT officers had issued assessments for underpaid VAT for accounting periods that have expired.

Under current rules (at Section 73/77 of the VAT Act), HM Revenue & Customs can only go back four years after the end of a prescribed accounting period to asses for VAT errors.

Even then, a VAT officer must assess within one year of obtaining evidence of fact sufficient to justify the making of an assessment, said Julie Green, a VAT consultant at CCH.

If they do not assess within one year, the officer is only entitled to go back two years. And if they want to go back more than four years, they must have proof of “dishonest declarations”.

“HMRC VAT Officers may try and exceed the 4-year assessment cap,” Green added. “If… [firms] receive assessments for VAT, not only should they check that the grounds for the assessment are correct (assessments can be issued in error), but also that the assessment is for the correct period.”

The VAT expert pointed out that the four-year ‘look-back’ limit does not apply to late VAT registration, and in such cases HMRC is entitled to go back 20 years.

It also does not apply to IR35, assessments under which HMRC can go back six years to make, and for information to establish the tax liability of a person or company, HMRC is free from any cap.

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