HMRC has changed its process for late VAT returns

HMRC has changed its process for late VAT returns

HMRC is changing the assessment process for late VAT returns, making it even more important to ensure you have detailed records and that all returns are submitted on time.

If you (your business) fails to file a VAT return by the due date, HMRC will apply a central assessment automatically on their system. That assessment will be sent to the individual / company 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.

HMRC usually send assessments that are higher than the VAT which is actually payable, to encourage you to submit the VAT return as soon as possible to avoid being chased for the higher amount.

Sometimes the assessment may be lower than the VAT actually payable, but to avoid being tempted to pay the lower assessment rather than submit the VAT return with the correct figure, there is now additional legislation that means that if HMRC are not notified within 30 days that the assessment is too low, then there is 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 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, however 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.

If you receive a central assessment, the 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.