Value Added Tax Act 1994 section 26AB

Adjustment of output tax in respect of supplies under section 55A

Section 26AB provides relief where a business has lost its input tax credit under the late payment rules but is also required to account for VAT on the same supply under the reverse charge mechanism used to combat missing trader fraud.

• Where input tax credit is denied under the late payment rule (section 26A) on a supply subject to the domestic reverse charge (section 55A), the recipient may reduce the output VAT they must account for by the same amount
• The adjustment equals the input tax credit that has been disallowed, ensuring the business is not doubly penalised
• HMRC may make regulations governing how, when and for how long the adjustment takes effect, and what records must be kept to support it
• If the input tax credit is later restored (for example, because the supplier is eventually paid), a corresponding readjustment to the output tax reduction must be made