VAT errors can prove costly to you as failure to correct errors can result in a penalty and interest.
If you discover that you have made an error in your vat records and/or returns, then you need to correct them. How you do this will depend upon whether you have submitted the return for the vat period in which you have made the error.
|If you have NOT yet completed your vat account or return for the period in which you made the error then :||You can correct the error by amending your records. You should make a clear note to show the reason for the error and you should make sure that the correct VAT figure is declared on the return.
|If you have already submitted your return then :||You will need to correct the error as detailed below.|
There are two methods for correcting any errors made as follows:
Method 1 – correction on a vat return
You can use this method to adjust your VAT account and include the value of that adjustment on your current VAT return providing:
- the net value of errors found on previous returns does not exceed £10,000, or
- the net value of errors found on previous returns is between £10,000 and £50,000 but does not exceed 1% of the box 6 (net outputs) VAT return declaration due for the return period in which the errors are discovered
To work out the net value of VAT errors on previous returns, you should work out:
- the total amount due to us, if any, and
- the total amount due to you, if any.
If the difference between the two figures is greater than £10,000 and exceeds 1% of the box 6 (net outputs) VAT return declaration due for the current return period during which the error is discovered, you must use Method 2. You must always use Method 2 if the net errors exceed £50,000 or if the errors made on previous returns were made deliberately.
Method 2 – VAT Form 652
You must use this method if:
- the net value of errors found on previous returns is between £10,000 and £50,000 and exceeds 1% of the box 6 (net outputs) VAT return declaration due for the current return period during which the error was discovered, or
- the net value of errors found on previous returns is greater than £50,000, or
- the errors on previous returns were made deliberately.
You may, if you wish, use this method for errors of any size instead of a method 1 error correction. If you use this method you must not make adjustment for the same errors on a later VAT return.
You should use form VAT 652 when notifying HMRC of an error correction under this method or you can write to the appropriate office for error corrections and provide full details of the errors in a letter including:
- how each error arose
- the VAT accounting period in which it occurred
- if it was an input tax or output error
- the VAT underdeclared or overdeclared in each VAT period
- how you calculated the VAT underdeclared or overdeclared
- whether any of the errors resulted in you paying HMRC an amount that wasn’t due
- the total amount to be adjusted, and
- Sufficient detail about the error to enable HMRC to decide if interest is due
To avoid penalties or in some cases reduce them, it is important that errors are corrected immediately and that your declaration or correction is not prompted by a HMRC visit.
If we find errors in your records when we review them, we will advise you how to make the necessary corrections. If you discover that you have made an error and would like to discuss what to do next, then please contact us.