VAT: How claims are processed

By   2 February 2023

Further to my article on repayment interest, I thought it may be helpful if I looked at how HMRC process repayment returns, and what can delay payments.

Once a business submits a repayment return it is subject to a number of set steps:

  • Step 1

HMRC records the date a return is submitted online via MTD.

  • Step 2

Automated credibility checks are applied to all claims. HMRC say that most returns pass these tests. If this is the case, they proceed immediately for payment.

  • Step 3

Credibility queries (or “pre-cred” queries) – returns that fail the automated tests are checked manually and are either resolved by the credibility team, or sent to officers to carry out further investigation.

  • Step 4

Returns sent for further checks – HMRC say that high priority is given to these verifications and any queries are handled with the minimum involvement of, or inconvenience to, a business. Experience insists that this is not always the case.

  • Step 5

Credibility queries are returned to the credibility team – results of the officer’s action, including any amendments required, are returned with a certificate detailing the amount of time taken and any official delay. Claims are passed for payment.

  • Step 6

Payment of the claim – once a claim has been accepted, repayment is made immediately. HMRC’s systems check whether repayment interest is applicable. If it is, the interest is paid automatically at the same time as the repayment.

Commentary

Most issues usually arise when returns show “unexpected” repayments – eg; a business regularly submitting payment returns submits an one-off claim, or when a first return shows a significant repayment. The pre-cred checks are undertaken to protect the revenue, that is; to ensure that the claim is valid before money is released. Normally, these checks involve a request for copies of purchase invoices, a telephone conversation, or a physical visit by an officer. Not unreasonably, the quantum of the claim impacts significantly the way HMRC handle it.

However, delays can occur on both sides. A business will have to reply to all HMRC requests timeously (and this is in its interest) but more often a claim will be ‘lost” in the system, or inspectors take an unacceptable time to deal with queries. I have one claim that is still in the system after being lodged in January 2021, despite us providing all information requested immediately.

Reasons for unexpected repayments

There are a number of reasons why a return may be an unusual repayment, which include, but are not limited to a:

  • large one-off VAT bearing purchase, eg; machinery, computer system, or land/property
  • premises refurbishment
  • concentration of professional/advisory fees
  • large export order
  • change in business structure
  • new line of business
  • change of a product’s liability
  • change of government policy
  • new product launch