Andrew Needham looks at how long HMRC has to issue a VAT assessment.
The basic rule is that HMRC has a maximum of four years from the end of the VAT period an error occurred to issue a valid assessment, or 20 years in the case of fraud. However, there are some other time limits that businesses should be aware of, as they could get you out of trouble with HMRC.
HMRC have the information
The legislation says that HMRC has one year after identifying a problem to issue an assessment.
From 1 April 2009 (under VATA 1994, s 73(6)), an assessment must be made within ‘one year after evidence of facts, sufficient in the opinion of HMRC to justify the assessment, comes to their knowledge’.
The process involved in making an assessment includes:
- deciding in principle to assess;
- quantifying the arrears; and
- checking the calculation of arrears.
The process ends when HMRC has taken all steps necessary to establish to the best of their judgement that the business owes a quantified sum for a given reason.
This means that once HMRC has completed their inspection and obtained sufficient information to allow them to calculate an assessment, they have to issue it within 12 months, or they are out of time and cannot assess you. It is not uncommon for changes of staff and the normal slow pace of HMRC for them to take some time to actually get round to issuing the assessment.
In addition to this, HMRC has a maximum of two years to issue an assessment from when they originally became aware of the facts, not when they have quantified the amount of the assessment.
Having made an assessment, HMRC can reduce it or issue a supplementary one, but outside the two- and substitute another one on the same basis unless they have new facts.
HMRC must also issue a penalty within two years of finally deciding how much tax is owed.
When is an assessment made?
HMRC used to try and get around the time limit rules by deciding how much an assessment would be, completing, dating and signing the forms, but not sending them out within the one-year time limit, and then arguing that the assessment had been ‘made’ in time.
However, although the law merely requires an assessment to be made within the time limit, not notified as well, this has created problems in the past when there has been a delay between the making of the assessment and the notification to the trader. Following criticism from the tribunals, HMRC has decided, as a matter of policy, that they must also notify the assessment within the one-year time limit.
How should an assessment be notified?
The law does not state the form in which an assessment should be made, or how it should be notified. Usually, HMRC uses standard paperwork produced by their computer system. However, various decisions, such as Piero’s Restaurant and Pizzeria (LON/2001/927 No 17711), have established that an assessment can be in the form of a letter, provided that it clearly expresses a decision to assess, and that it (or any accompanying schedules) gives details of the amounts due for each VAT period.
Practical Tip:
If you receive a visit from HMRC, they cannot assess you for more than the previous four years. Once they have the information to assess you it must be issued within 12 months, but they still only have two years from the date of the visit.
