VAT relief for historic bad debts

During the period from 1997 to 2003 the taxpayer had failed to reduce its daily gross takings to reflect dishonoured cheques. This was not discovered until September 2011 when the company submitted a voluntary disclosure to HMRC to recover overpaid output tax of £1 876 141. HMRC rejected the claim on the basis that it was relevant to errors made on returns submitted more than four years ago so the disclosure was out of time.

The taxpayer reviewed the position and included the same amount as a reduced output tax figure on its January 2018 VAT return. HMRC rejected the claim and raised an assessment on the basis that the figure for bad debts should have been adjusted in the period when the cheques bounced. If an adjustment was not made on that return it related to an error subject to the four-year cap.

The...