BIM31620 - VAT: timing of deduction

Under VAT law, the liability to account for VAT arises at the time of the supply. It does not matter that because of non-registration with HMRC or for some other reason, the VAT is not paid to HMRC at the proper time. It follows that in such cases a charge for the extra VAT due in the period in which the relevant sales were made would be an admissible deduction even though the extra VAT was not paid at the appropriate time.

In practice, the period for which the extra VAT may be allowed as a deduction may be:

• that in which it is paid; or
• that in which the extra liability is agreed with HMRC; or
• that in which the sales were made.

so long as the assessment has not become final and conclusive nor a contract settlement finalised covering the period in which a deduction for the further VAT is sought.

Where the third method is adopted, VAT referable to earlier periods for which the assessments have become final may be allowed in the earliest open period, in addition to any VAT referable to the period itself.