V5.172 VAT debts—set-off

HMRC shall off-set any payment due to a person under VATA 19941 against any sum for which he is liable by way of tax, penalty, interest or default surcharge and the obligations of both parties are discharged, to the extent of the set-off where they do so2.

In certain circumstances, the normal time limits for the raising of an assessment (see V5.136–V5.136B) do not apply in cases of set off3. This is to avoid the situation where, for example, a taxpayer makes a claim for overpaid output tax in relation to what are determined to be exempt supplies, but the time limits prevent HMRC from making an assessment in respect of related input tax. In Laing4, the appellant underdeclared tax totalling some £60,000 over a number of periods, and purported to correct this by restricting its input tax claim in a later period. Subsequently, and at a time more than three years after the time of the original underdeclarations, HMRC discovered a number of errors (including the £60,000 'correction') resulting in a net overpayment due to the appellant. In calculating the amount due to the appellant, HMRC excluded the £60,000 'correction', ie it did not treat it as an overdeclaration. The tribunal held that it was justified in so doing; the normal capping provisions were overridden by VATA 1994, s 81(3A).

In Birmingham Hippodrome5 the appellant, a registered charity, accounted for VAT on supplies which it subsequently transpired qualified for exemption as 'cultural services'. In 2007 it submitted a

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