Regulation 38 of the VAT Regulations 1995 (the Regulations), has been amended to put it beyond doubt that reductions in the amount of VAT paid to HMRC can only be made when a refund is given to customers. The revised rules also clarify when and how VAT adjustments must be made.

The reason for the change is to prevent businesses using the Regulations to gain a tax advantage by making VAT adjustments for reductions in price without refunding their customers. HMRC claims it has evidence that some businesses have been doing this. In addition, HMRC claims it is aware that some businesses have incorrectly attempted to treat errors as price adjustments for the purpose of avoiding the relevant time limits.

HMRC has issued Revenue and Customs Brief 6 (2019), which explains the implications of the change and the new rules which came into effect on 1 September 2019.

The Brief can be viewed here.