VAT time-travel opportunity
Businesses that under-claimed input VAT for accounting periods ending between 1 April 1973 and 1 May 1997 can now claim it back. The Finance Bill has brought in transitional rules allowing businesses to make VAT repayment claims for periods up to the date the present three-year time limit for claims was introduced.
The change follows a ruling by the Lords in January 2008 that the three-year limit does not have effect for any right to claim input tax for periods before 1 May 1997 because no transitional period was provided at the time. The new transitional period, which rectifies this, runs up to 31 March 2009.
Claims for repayment because a trader accounted for more output tax than was due became subject to a three-year time limit on 4 December 1996. The transitional rules will allow claims for periods up to that date.
Correcting more recent errors in VAT returns is about to become easier as well. At present, if you find you have made mistakes in a VAT return, you can correct them in the return for the period in which you discover them, provided the net amount involved is not more than £2,000. From 1 July 2008, that limit will increase to £10,000 or 1% of turnover, whichever is the greater, subject to a maximum of £50,000.
You can only correct errors that occurred in accounting periods that ended within the previous three years. If you discover errors amounting to more than the new limit you cannot correct them in a VAT return but must disclose them in writing to your local VAT Business Advice Centre. You will need to give full details of the amount of each error and when and how it arose.
Making a voluntary disclosure of errors will avoid the misdeclaration penalty that HM Revenue & Customs (HMRC) may charge if it discovers errors during an enquiry. However, HMRC may charge interest on underpaid VAT, depending on the circumstances of the error.
Like all taxes, the VAT rules change constantly. If you need help with your VAT returns, or have questions about any aspect of VAT, please get in touch.