CIOT say VAT compensation changes are unfair
The Chartered Institute of Taxation (CIoT) has called on the Government to scrap its proposals to remove compensation for delays to VAT refunds by HM Revenue and Customs (“HMRC”) saying it could harm cash flow in those business affected by the change.
Currently, where a business submits a VAT return to HMRC which outlines a repayment of VAT, but officials fail to process it within 30 days, the business may be entitled to a ‘Repayment Supplement’ of five per cent of the reclaim amount.
Designed to encourage HMRC to repay promptly, the ‘Repayment Supplement’ rules are an important part of the VAT reclamation process.
Although the 30-day period can be paused if the official needs to make reasonable enquiries, the ‘clock’ is then restarted once these have been completed, ensuring that the VAT is paid when it can be shown that the enquiries were not reasonable.
However, the Finance Bill 2018/19 draft legislation has revealed that this five per cent repayment supplement would be scrapped and ‘simple interest’ would be paid instead, which is significantly lower than the five per cent currently offered.
Additionally, the proposals suggest that HMRC will not have to pay any interest for the period in which they make enquiries into the VAT return.
A spokesman for the CIoT said that, since VAT is an inherent part of a firm’s cash flow, these changes could result in businesses incurring additional costs while they wait for their refund.
While these new rules are yet to be enacted, it is important that businesses remain aware of the change so that they are able to manage their cash flow in future should the rules change.