Central assessment of VAT – HMRC’s process for late returns

Have you ever missed filing a VAT return? If so, you’ll be familiar with HMRC’s ‘central assessment of VAT’ process. This process changed in 2023, making it more important than ever to file your VAT returns correctly and on time.

What is central assessment of VAT?

Imagine you forget to file your VAT return on time. When this happens, HMRC raises a central assessment of VAT. This is an estimate of how much VAT you owe. The figure is normally based on how much VAT you owed in previous returns. If the taxman doesn’t have this data, he’ll make the estimate in a different way.

The central assessment of VAT is important because any late payment penalties are initially based on this figure. The assessment is frequently higher than the true amount of VAT owed, thus giving business owners an extra incentive to file their returns on time.

Even if the figure is lower, it’s of no help to the taxpayer. If they decide to pay the lower figure of the central assessment, they end up in extra hot water. This is because HMRC gives the taxpayer 30 days to inform them the central assessment of VAT is too low. If they don’t, they can get slapped with a further penalty of 30% of the difference between the assessed and true amount.

What changed with the process?

Under the old system, if you subsequently submitted your late return, HMRC would remove the central assessment for VAT from your account the next working day.

Under the current system, the central assessment stays on your account until the late return has been fully processed.

This can be problematic. If your late return becomes subject to compliance checks, the central assessment stays on your account until these are complete.

Why is this important?

Hilary Bevan, writing at AccountingWeb, recounts a horror story…..

In a nutshell, a client didn’t submit their VAT return on time. HMRC raised a central assessment for VAT. The client submitted the VAT return, but a week later and HMRC officer turned up to seize assets for non-payment.

Even though the client had submitted the VAT return, it didn’t show up on the HMRC officer’s system. Only the central assessment for VAT did.

Fortunately the client could show the HMRC evidence of submission. A few days later they got a letter saying HMRC wanted to do a compliance check.

What should I do about central assessment of VAT?

In an ideal world, it’s much safer to pay your VAT return on time and in full. If you are a THP client, our accountants can help you with everything from budgeting to cashflow to ensure this happens.

However, if you do fail to submit a return on time, be sure to pay and submit as soon as possible. If you have the funds, it would also be safer to pay the central assessment figure. That way, you should prevent HMRCs debt collectors turning up to seize your assets!

If you’d like any help with calculating and submitting your VAT returns, please get in touch with the THP team today.