Weekly tax brief
VAT repayments: are business owners receiving everything they are entitled to?
30 November 2021
When a taxpayer submits a VAT return claiming a VAT repayment, HMRC may be liable to pay the taxpayer an additional repayment supplement (calculated at five per cent of the amount claimed) if it fails to release the amount due to the claimant within the legal time limit of 30 days.
The clock starts ticking for HMRC on the day the VAT return is received or, if later, the day after the end of the VAT period to which the claim relates. However, HMRC is entitled to pause the 30-day clock for the time it takes to raise and answer any reasonable enquiry related to the claim. The clock is stopped on the date when HMRC first raises the enquiry and restarts on the date when HMRC receives a complete answer to its enquiry. The clock is running again while HMRC considers that answer. HMRC is not liable for a repayment supplement if the VAT return is submitted late, or if its enquiries reduce the value of the claim by 5 per cent or £250, whichever is the greater.
These rules have been in place for decades, and HMRC has long-standing procedures in place for its officers to urgently check repayment returns, with the aim of both protecting the revenue from fraudulent claims and ensuring that valid claims are paid quickly. Repayment supplement has often been paid automatically in cases when HMRC was clearly late in releasing the funds.
Recently, though, it seems that standards may have slipped. We have seen several instances of HMRC taking longer than normal to process repayments, then failing to automatically add repayment supplement when it has exceeded the 30-day limit. Where the claimant then asks HMRC for repayment supplement, HMRC sometimes tries to defend its position based solely on the fact that it had to raise a query during the repayment process, seemingly thinking this stops the clock altogether, rather than just pausing it for the time it takes for the claimant to submit a satisfactory response.
This problem is no doubt yet another consequence of HMRC’s resources being greatly overstretched by the demands of Coronavirus and Brexit. However, the system of promptly checking and processing refund claims is a vital part of the VAT system, especially for new businesses and those making major asset purchases. It is not therefore something that should be seen as expendable in the face of other pressures. Five per cent of the VAT refund due can add up to a significant sum, especially in these cash-strapped times, so businesses claiming refunds should always watch the amount of time that HMRC takes to process their refund, and fight for repayment supplement if that refund has been unduly delayed.
The clock starts ticking for HMRC on the day the VAT return is received or, if later, the day after the end of the VAT period to which the claim relates. However, HMRC is entitled to pause the 30-day clock for the time it takes to raise and answer any reasonable enquiry related to the claim. The clock is stopped on the date when HMRC first raises the enquiry and restarts on the date when HMRC receives a complete answer to its enquiry. The clock is running again while HMRC considers that answer. HMRC is not liable for a repayment supplement if the VAT return is submitted late, or if its enquiries reduce the value of the claim by 5 per cent or £250, whichever is the greater.
These rules have been in place for decades, and HMRC has long-standing procedures in place for its officers to urgently check repayment returns, with the aim of both protecting the revenue from fraudulent claims and ensuring that valid claims are paid quickly. Repayment supplement has often been paid automatically in cases when HMRC was clearly late in releasing the funds.
Recently, though, it seems that standards may have slipped. We have seen several instances of HMRC taking longer than normal to process repayments, then failing to automatically add repayment supplement when it has exceeded the 30-day limit. Where the claimant then asks HMRC for repayment supplement, HMRC sometimes tries to defend its position based solely on the fact that it had to raise a query during the repayment process, seemingly thinking this stops the clock altogether, rather than just pausing it for the time it takes for the claimant to submit a satisfactory response.
This problem is no doubt yet another consequence of HMRC’s resources being greatly overstretched by the demands of Coronavirus and Brexit. However, the system of promptly checking and processing refund claims is a vital part of the VAT system, especially for new businesses and those making major asset purchases. It is not therefore something that should be seen as expendable in the face of other pressures. Five per cent of the VAT refund due can add up to a significant sum, especially in these cash-strapped times, so businesses claiming refunds should always watch the amount of time that HMRC takes to process their refund, and fight for repayment supplement if that refund has been unduly delayed.
