VAT on forfeited deposits

[AngryVATman]

Client hasn't been reclaiming VAT paid on retained deposits. I'm aware of the looming change from 1 March 2019 meaning that VAT will be due on deposits forfeited, however can my client make a claim prior to 1 March 2019 for the previous four years?

Guidance at https://www.gov.uk/government/publications/revenue-and-customs-brief-13-... states:

6. Previous VAT periods

Businesses that have not treated payments for unfulfilled supplies as outside the scope of VAT have applied the law correctly. They cannot make any adjustment to previous VAT periods to treat supplies in line with former policy, as no error has been made.

Does this mean no adjustment can be made now, or after the 1 March 2019 change? It's a bit vague.

[Trevor S]

I believe that this extract needs to be read in conjunction with 4.1 of the same document.

If a business had always been adjusting for the VAT on forfeited deposits (in accordance with previous policy), they may continue to do so up until the end of this month. This is because HMRC accept that the taxpayer has relied upon erroneous advice provided by HMRC. Theoretically HMRC could have applied their new guidance with effect from the date of the Brief, however they've allowed a couple of months so that affected businesses can amend their procedures - and of course their prices, assuming that pricing levels were set with the assumption that a certain percentage of deposits would likely be forfeited.

However, if a business has not been adjusting the VAT when a deposit was forfeited, they have actually been applying the law correctly. There is no loss to them resulting from the change in policy - in that they won't have been basing their pricing on an assumption that VAT could be adjusted on forfeited deposits. So they can't now go back and submit a claim based on HMRC guidance which is known to be incorrect.