Has your business paid too much VAT?

This article examines the reasons why you as a business might pay too much on VAT and what you can do to avoid overpaying in future.

There are a variety of reasons why a business may overpay on VAT.

The main examples include:

      1. not claiming all of the VAT it is entitled to claim on costs or,
      2. charging too much VAT on sales

Another reason a business may overspend on VAT is due to it being incorrectly charged too much VAT by a supplier, mainly because of confusion about the correct rate to charge. For example, when a construction company carries out work, different elements of the work could be subject to different rates of VAT. Some of the work may be subject to VAT at 20%, some at 5% and some at 0%, so it can be an easy mistake to make given the different variables.


Recovering VAT

Often when a business has been charged too much VAT by a supplier it can ask the supplier to issue a credit note. In some circumstances for example, this could however, be impossible or excessively difficult, if the supplier is in liquidation. In these circumstances the business that has been charged too much VAT can submit a claim for reimbursement directly to HMRC. The incorrectly charged VAT should not be treated as input tax on the VAT Return and HMRC can issue an assessment if it has. The claim to HMRC should be made by letter and, providing the supplier has accounted to HMRC for the incorrectly charged VAT, HMRC should consider the claim.


Below are some action points to consider:

  • When preparing VAT Returns, do not claim any VAT that has been incorrectly charged on supplier invoices.
  • Before paying a supplier invoice, check that the supplier has not charged too much VAT. If the supplier has charged too much VAT, only pay the correct amount to the supplier.
  • If you have already paid a supplier too much VAT, ask for a credit note.
  • If it is impossible or excessively difficult to obtain a credit note from the supplier, send a letter to HMRC claiming reimbursement.


As always, in the world of tax, the rules are complex and this blog provides only a broad overview, for more information contact Alex Millar at amillar@garbutt-elliott.co.uk or Naveen Sahney at nsahney@garbutt-elliott.co.uk for any assistance on these matters.