Value Added Tax Act 1994, section 25

Payment by reference to accounting periods and credit for input tax against output tax

Part I The charge to tax

(1)A taxable person shall—

(a)F189in respect of supplies made by him, ...

F189(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

account for and pay VAT by reference to such periods (in this Act referred to as “prescribed accounting periods”) at such time and in such manner as may be determined by or under regulations and regulations may make different provision for different circumstances.

(2)Subject to the provisions of this section, he is entitled at the end of each prescribed accounting period to credit for so much of his input tax as is allowable under section 26, and then to deduct that amount from any output tax that is due from him.

(3) If either no output tax is due at the end of the period, or the amount of the credit exceeds that of the output tax then, subject to subsections (4) and (5) below, the amount of the credit or, as the case may be, the amount of the excess shall be paid to the taxable person by the Commissioners; and an amount which is due under this subsection is referred to in this Act as a “VAT credit”.

(4)The whole or any part of the credit may, subject to and in accordance with regulations, be held over to be credited in and for a subsequent period; and the regulations may allow for it to be so held over either on the taxable person’s own application or in accordance with general or special directions given by the Commissioners from time to time.

(5)Where at the end of any period a VAT credit is due to a taxable person who has failed to submit returns for any earlier period as required by this Act, the Commissioners may withhold payment of the credit until he has complied with that requirement.

(6)A deduction under subsection (2) above and payment of a VAT credit shall not be made or paid except on a claim made in such manner and at such time as may be determined by or under regulations; and, in the case of a person who has made no taxable supplies in the period concerned or any previous period, payment of a VAT credit shall be made subject to such conditions (if any) as the Commissioners think fit to impose, including conditions as to repayment in specified circumstances.

(7)F190The Treasury may by order provide, in relation to such supplies ... and importations as the order may specify, that VAT charged on them is to be excluded from any credit under this section; and—

(a)F191,F191,F191any such provision may be framed by reference to the description of goods or services supplied or goods ... imported, the person by whom they are supplied ... or imported or to whom they are supplied, the purposes for which they are supplied ... or imported, or any circumstances whatsoever; and

(b)such an order may contain provision for consequential relief from output tax.

Definitions used in section 25 11

taxable person

“taxable person” means a person who is a taxable person under section 3;

Defined in s.96(1) · see it in the full Act
VAT

“VAT” means value added tax charged in accordance with this Act;

Defined in s.96(1) · see it in the full Act
regulations

“regulations” means regulations made by the Commissioners under this Act;

Defined in s.96(1) · see it in the full Act
prescribed accounting period

“prescribed accounting period” has the meaning given by section 25(1);

Defined in s.96(1) · see it in the full Act
the credit

(4A) Subsection (3) above shall not require any such amount as is mentioned in paragraph (a) of that subsection (“the credit”) to be set against any such sum as is mentioned in paragraph (b) of that subsection (“the debit”) in any case where—

(a)an insolvency procedure has been applied to the person entitled to the credit;

(b)the credit became due after that procedure was so applied; and

(c)the liability to pay the debit either arose before that procedure was so applied or (having arisen afterwards) relates to, or to matters occurring in the course of, the carrying on of any business at times before the procedure was so applied.

Defined in s.81(4A) · see it in the full Act
input tax

“input tax” has the meaning given by section 24;

Defined in s.96(1) · see it in the full Act
output tax

“output tax” has the meaning given by section 24;

Defined in s.96(1) · see it in the full Act
the Commissioners

“the Commissioners” means the Commissioners of Customs and Excise;

Defined in s.96(1) · see it in the full Act
VAT credit

“VAT credit” has the meaning given by section 25(3);

Defined in s.96(1) · see it in the full Act
taxable supply

“taxable supply” has the meaning given by section 4(2);

Defined in s.96(1) · see it in the full Act
supplied

(3) In sub-paragraph (2), “supplied” is to be construed in accordance with Part 1 of the Electricity Act 1989 (see section 64(1) of that Act ).

Defined in Sch.7A para.A1 · see it in the full Act

(3) In sub-paragraph (2), “supplied” is to be construed in accordance with Part 1 of the Electricity Act 1989 (see section 64(1) of that Act ).

Defined in Sch.8 para.3 · see it in the full Act

Cases considering section 25 56

DCM (Optical Holdings) Ltd v Commissioners for His Majesty’s Revenue and Customs (Scotland)

[2022] UKSC 26 · 12 October 2022Limits

The statutory scheme implicitly authorises reasonable and proportionate verification of a VAT credit before it is paid (see paras [27]-[33]). Read with section 25(3) and Schedule 11 as making allowance of an input-tax claim conditional upon verification (see para [28]). HMRC’s obligation to pay arises only when a VAT credit is established to be due. A trader’s assertion in its return does not alone create the obligation, and HMRC may verify and reject the claim wholly or partly (see paras [25]; [29]-[33]; [41]-[42]). The express power to impose repayment conditions does not exhaust HMRC’s statutory powers or exclude an implied power to verify and refuse an unestablished VAT credit (see paras [26]; [33]; [44]).

Total Network SL (a company incorporated in Spain) (Original Respondents and Cross-appellants) v Her Majesty's Revenue and Customs (suing as Commissioners of Customs and Excise) (Original Appellants and Cross-respondents)

[2008] UKHL 19 · 12 March 2008

A taxable person must account for and pay VAT on supplies and relevant acquisitions. It made the missing trader liable for unpaid output tax (see paras [13]; [18]). A taxable person is entitled to allowable input-tax credit and may deduct it from output tax (see paras [13]; [143]).

The Rank Group Plc v Revenue And Customs

[2020] EWCA Civ 550 · 24 April 2020Interprets

Section 25 requires VAT to be accounted for by prescribed accounting periods, with allowable input tax credited against output tax and any resulting excess paid as a VAT credit. This structure informed the distinction between ordinary accounting and section 80 repayment. (see paras [7]-[8], [35]) The prescribed-accounting-period structure was relevant to determining the VAT liability for each period and to rejecting a cross-period adjustment through section 81(3). (see paras [8], [34]-[35]) The entitlement to credit for allowable input tax is part of the ordinary period calculation, rather than a separate section 81(3) set-off in a section 80(1) or (1A) claim. (see paras [8], [34]-[36]) The court used the VAT-credit mechanism to illustrate cases where wrongly credited input tax may require an assessment under section 73(2). (see paras [8]-[9], [35])

36 more judgments, and what each says about section 25, are in the case-law panel in the full Act.

Amendments and notes

4 notes from legislation.gov.uk

Amendments

  1. F189S. 25(1)(b) omitted (31.12.2020) by virtue of Taxation (Cross-border Trade) Act 2018 (c. 22), s. 57(3), Sch. 8 para. 25(2) (with Sch. 8 para. 99) (with savings and transitional provisions in S.I. 2019/105 (as amended by S.I. 2020/1495, regs. 1(2), 21), S.I. 2020/1545, Pt. 4 and 2020 c. 26, Sch. 2 para. 7(7)-(9)); S.I. 2020/1642, reg. 4(b) (with reg. 7) this amendment is subject to savings and/or transitional provisions, see the commentary.
  2. F190Word in s. 25(7) omitted (31.12.2020) by virtue of Taxation (Cross-border Trade) Act 2018 (c. 22), s. 57(3), Sch. 8 para. 25(3)(a) (with Sch. 8 para. 99) (with savings and transitional provisions in S.I. 2019/105 (as amended by S.I. 2020/1495, regs. 1(2), 21), S.I. 2020/1545, Pt. 4 and 2020 c. 26, Sch. 2 para. 7(7)-(9)); S.I. 2020/1642, reg. 4(b) (with reg. 7) this amendment is subject to savings and/or transitional provisions, see the commentary.
  3. F191Words in s. 25(7)(a) omitted (31.12.2020) by virtue of Taxation (Cross-border Trade) Act 2018 (c. 22), s. 57(3), Sch. 8 para. 25(3)(b) (with Sch. 8 para. 99) (with savings and transitional provisions in S.I. 2019/105 (as amended by S.I. 2020/1495, regs. 1(2), 21), S.I. 2020/1545, Pt. 4 and 2020 c. 26, Sch. 2 para. 7(7)-(9)); S.I. 2020/1642, reg. 4(b) (with reg. 7) this amendment is subject to savings and/or transitional provisions, see the commentary.

Modifications

  1. C24S. 25(6) modified (retrospective to 19.3.2008) by Finance Act 2008 (c. 9), s. 121(2)(4)