What do you do if you make an error on your VAT return?



Mistakes are easy to make and HMRC recognises this by allowing you to correct for errors on your next VAT return provided that it complies with a few rules.

VAT errors below £10,000

As the title would suggest, your error must be under £10,000. If you have made several errors, perhaps some in your favour and some to the benefit of HMRC, then so long as the net of these errors is below £10,000, you are okay.

Errors over £10,000 but under £50,000 can still be adjusted on your next return so long as the net error is less than 1% of the Box 6 figure (net value of sales). Any errors otherwise above £50,000 must be notified to HMRC in writing.

4 year rule

Again, as the title suggests, you have four years to adjust. That is that you have four years to correct for an error from the end of the VAT period in which the error occurred.



How do you correct for an error?

Depending on whether it relates to sales or purchases, you do one of the following:

Sales – If you missed off a sales invoice or receipt, just include it in your Box 1 (VAT on outputs) and Box 6 (net sales) amount in the usual way.

Purchases – If you claimed VAT on a purchase you shouldn’t have or missed the VAT on a purchase then you need to adjust for your error in the total for Box 4 (VAT reclaimed on purchases) and also in the Box 7 (net purchases) figure.



Reporting VAT errors to HMRC

Even if the value of the error is less than the reporting threshold, we would recommend that it is notified to HMRC as this reduces any chance of a penalty being applied. If you use the VAT 652 form to do this, then you must ensure that the box is ticked to show ‘Adjusted in VAT Return’ – otherwise you will receive a demand to pay the VAT error again.

n.b. HMRC are very hard on errors made deliberately and can impose a penalty of up to 100% of the VAT you’ve underpaid if the error can be proved to be an intentional action! Always pay what is due! 

If you spot an error, adjust for it and make HMRC aware on your own accord then you need not worry about any penalty.



The only thing left to do after all this is to make a note and let us know of any errors when it comes to your end of year accounts so that we can make the necessary adjustment in the accounts.


As always, we are at the other end of the phone if you have any trouble.