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Time limits for correcting VAT errors

Q: My client has been paying for a standard-rated service from a non-VAT registered supplier for the last 7 years and has never been charged VAT on this. She has just received VAT invoices for the last 6 years' worth of services on the basis the supplier should have actually been VAT registered from 6 years ago and is now catching up that VAT. Given the 4 year time limit for correcting VAT errors, does that mean my client can only claim VAT for 4 of the 6 years concerned?

A: No. As per VAT regulation 29(1) of the VAT Regs 1995 you may reclaim VAT as input tax when, and only when, you are in possession of the necessary evidence of input tax (i.e. VAT invoice in this case). Although the tax point for the supply received may have been 6 years ago, the VAT invoice has only been issued now and is therefore only recoverable by your client now. VAT should be recovered in the first VAT return in which the criteria are met (i.e. now) so recovery now rather than in the past is correct, so not an error and not, therefore, caught by the 4 year error correction time limit.

If, now your client does meet the recovery criteria, it doesn’t recover the VAT in this VAT return, that would be an error and your client would only have up to 4 years from now to corect that VAT recovery. So as long as your client was both a taxable person when receiving the supply and it was used by your client in connection with her taxable activities at that time, she can recover this VAT in this VAT return in the normal way.