Do you make errors on your VAT return?

Do you make errors on your VAT return?

Have you submitted your VAT Return to the HMRC and just realised you made a mistake? How can you tell HRMC about it, when, and how can you make adjustment to your accounts and, of course, your return? All that and more will be discussed today. But, above and beyond all, know that you should act fast to avoid being charged with interest and even a penalty.

Before you start doing anything, first check the end date of the VAT accounting period when you made the error. Until 2009, you could only correct mistakes that were made in the last three years. Since then, you can correct errors that arose in VAT periods that ended four years ago.

Take reasonable care

You must be very careful when correcting errors because any inaccuracy (deliberate or due to carelessness) either when informing HMRC about the correction or when correcting the error on your return could cause you a penalty.

So, investigate how the error occurred and then make a note in your VAT account (full details of the error, as well as record and date of your discovery).
If you still made an error even though you were diligent, you need to take some action at the end of the VAT accounting period.

For careless mistakes (over-claimed or under-declared tax), you will have to let HRMC know whether you would like to be considered for a suspension or reduction, in case they decide to impose a penalty. It is also critical to tell them that you have corrected the error on the return or that you will do so in a timely manner, to avoid being assessed for interest and tax.

How to inform HMRC about an error

To report errors that arose on past returns, you can either use form VAT 652 (Notification of Errors in VAT Returns) or let them know in writing. In the second case, send your error correction notification to HM Revenue and Customs/VAT Error Correction Team.

Whichever way you choose, you will have to explain every mistake in full detail. This means that you have to mention (always by reference to your business records):

  • How the error occurred and the VAT period it was made.
  • How much VAT was over- or under-declared (you may be called to pay interest).
  • If it was a mistake on output or input tax.
  • Measures you took to correct the error.
  • The overall amount of the error and if you want to claim a refund (in case you have overpaid).

What to do if you find a deliberate inaccuracy

Inform HRMC immediately. Check the HRMC website for technical guidance in regards what is considered a careless error, reasonable care, and a deliberate error. Note that you won’t be able to adjust deliberate errors in a later VAT Return. This means that, when you calculate your net error (at the end of the VAT period), you should exclude these errors and mention them separately.

If the net value of the errors is less than the error correction reporting threshold (£10,000 or 1% of the Box 6 figure on your VAT Return) for the VAT accounting period the error was made, then you can correct the error(s) by adjusting your current VAT Return. To do that, your VAT account should show the amount of the adjustment you made on your own VAT account (of either input tax or output tax)- claimed by the net value of the errors (if more than one). Then, adjust Box 4 or Box 1 on your VAT Return accordingly.

In any other case, you need to report the error(s) separately (in writing).

Notes about Time Limits

The only case when time limits don’t apply is when an error was made in the amount of VAT on the return right after or before the return for which the amount was due.
Net errors below the threshold discussed before can only be corrected if they were made in returns (VAT accounting period ended less than four years ago) subject to transitional arrangements.

For more information on how to claim refunds, transitional arrangements, as well as other claims and adjustments (i.e. Retail Scheme adjustment), contact us. We are at your disposal 24/7.

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