In this section:
- What to do if you made a mistake on an earlier VAT Return
- VAT Returns sent back to you for correction
- Paying interest on late or undeclared VAT payments
- Interest when HM Revenue & Customs makes a VAT payment error
What to do if you made a mistake on an earlier VAT Return
This guide explains what you have to do if you discover that you've made an error on a VAT Return that you've already submitted to HM Revenue & Customs (HMRC). It tells you how and when you have to inform HMRC, and how to make adjustments in your return and accounts. It also tells you when an adjustment is considered to be part of normal accounting and is not an error. The majority of small errors will not be careless or deliberate, so no penalty will be due. People do make mistakes, and HMRC does not expect perfection.
If you've made a mistake on a previous VAT Return you might be charged interest or even a penalty, so it's important to act immediately.
On this page:
- Act immediately if you find an error on a VAT Return you've already submitted
- Action you must take at the end of your VAT accounting period
- How to adjust your VAT Return
- How to tell HMRC about an error
- Time limits for correcting errors
- Claiming refunds
- Other VAT adjustments or claims that are not considered to be errors
- Getting it right first time
- More useful links
Act immediately if you find an error on a VAT Return you've already submitted
It is essential that you keep accurate accounting records, and that your VAT Return declarations are made and recorded correctly. If you find that you've made mistakes in a return that you've already submitted, you must correct them using the steps described below.
More about correcting errors on previous returns in VAT Notice 700/45
Step 1: Check the end date of the VAT period when the error was made
Until 31 March 2009 you could not correct errors that arose in VAT accounting periods that ended more than three years ago. The limit of three years was increased incrementally to four years from 1 April 2009. If you need to correct an error that arose in a VAT accounting period that ended more than three years ago, for details of the special rules that apply in the changeover period see the section in this guide on the time limits for correcting errors.
The time limit does not apply if the errors are time of supply (tax point) errors - that is, where you've declared an amount of VAT on the return that is immediately before or follows the return for which the amount was due. These can be corrected at any time.
Step 2: Take care when correcting errors
You must take reasonable care when correcting errors. If you make a careless or deliberately inaccurate error correction on your return, or in your error correction notification to HMRC that relates to return period(s) with a due date ending on or after 1 April 2009, you may be charged a penalty.
Find out more about the penalty for errors in tax returns and documents (PDF 48K)
Step 3: Investigate how the error occurred and disclose it to HMRC if appropriate
You should investigate how the error occurred and make a note of your conclusion as described in step 4. For errors made in return periods with a due date on or after 1 April 2009, you may be charged a penalty for careless or deliberate inaccuracies in returns or other documents.
The majority of small errors will not be careless or deliberate, so no penalty will be due. People do make mistakes, and HMRC does not expect perfection.
Errors made despite taking reasonable care
For how to correct errors that were made even though you took reasonable care, see the section in this guide on what to do at the end of your accounting period. You don't need to disclose these separately to HMRC when you find them.
Careless errors
In all cases, if you find an under statement or over-claim of tax error that resulted from careless behaviour you should disclose it to HMRC separately if you wish to be considered for a reduction or suspension in any penalty imposed. See the section in this guide on how to tell HMRC about errors.
Please tell HMRC if you are disclosing an error for consideration of reduction, or suspension, of a penalty for careless behaviour but you have corrected the tax error on your return. It is important that you tell HMRC if you have already corrected the tax error, or that you will be correcting the tax error at the end of the return period of discovery as allowed under the error reporting limit, otherwise you may be assessed for tax and interest.
However, provided the net value of such errors discovered in a period is below the relevant limit, a careless error can still be adjusted in the VAT Return for the period of discovery and will therefore not face a charge for interest. See the section in this guide on what to do at the end of your accounting period.
Deliberate inaccuracies
If you find a deliberate inaccuracy in a previously submitted return, you must disclose it to HMRC immediately. You cannot adjust these errors in a later VAT Return, and so should not include these when calculating your net error at the end of the accounting period. See the section in this guide on how to tell HMRC about errors.
Find technical guidance on what is reasonable care, and what are careless and deliberate errors
Find out more about the penalty for errors in tax returns and documents (PDF 48K)
Step 4: Record the error in your records
On discovery of the error you should record and date your discovery of the error in your VAT account, along with full details of the error.
Action you must take at the end of your VAT accounting period
At the end of your VAT accounting period, calculate the net value of all the errors you found during the period that relate to returns you've already submitted - that is, add together any additional tax due to HMRC, and subtract any tax you should have claimed back. Don't include any deliberate errors - these must be separately disclosed to HMRC. What you do next depends on whether the net value of all the errors is greater than the error reporting threshold.
Subject to the time limits specified, the error correction reporting threshold applies to net errors that are the greater of:
- £10,000
- 1 per cent of the Box 6 figure required on your VAT Return for the period when you discover the error - subject to an upper limit of £50,000 or above which must be reported to HMRC
If the net value of previous return errors is less than this threshold then, if you prefer, you may correct the errors by making an adjustment on your current VAT Return (in the technical guidance this is called 'Method 1') - see the section in this guide on how to adjust your VAT Return.
But if the value of the net VAT errors discovered is above this threshold, you must report them to HMRC separately, in writing (in the technical guidance this is called 'Method 2') - see the section in this guide on how to tell HMRC about errors.
How to adjust your VAT Return
As detailed in this guide, for certain errors whose net value is below the error correction reporting threshold, you can correct them by adjusting your VAT Return - whether or not you've already disclosed them to HMRC for penalty reduction purposes and told HMRC you will correct the error on your return.
At the end of the VAT period when you discovered the error or errors, adjust your own VAT account of output tax due or input tax claimed by the amount of the net error value. Make sure that your VAT account shows the value of the adjustment you make to your VAT Return.
Then, make this adjustment to either Box 1 or Box 4 on your return, as appropriate. For example, if you discover that you failed to account for VAT due to HMRC of £100 on a supply that you made in the past, add £100 to your Box 1 figure on your return.
If you discovered more than one error, use the net value of all the errors to adjust your return.
How to tell HMRC about an error
As detailed in this guide, for certain errors you need to tell your relevant HMRC VAT Error Correction Team, in writing, about the mistake. The simplest way to tell them is to use form VAT 652 'Notification of Errors in VAT Returns', which is for reporting errors on previous returns, but you don't have to use form VAT 652 - you can simply write a letter instead.
You must explain each error in detail by reference to your business records, including:
- how the error happened
- the VAT period when the error was made
- whether it was an error on input or output tax
- how much VAT was underdeclared or overdeclared
- how you worked out the error
- whether you are claiming a refund of an overpayment
- the total amount of the error
When you've completed your form, or written your letter, use the link below to find out where to send it.
If you underpaid or overclaimed VAT, you may have to pay interest.
Find out where to send your form VAT 652 or disclosure letter
Find out more about paying interest on late or undeclared VAT payments
Time limits for correcting errors
There are time limits for correcting errors, as described below. If the errors are errors in the time of supply (tax point errors) - that is, where you've declared an amount of VAT on the return that immediately precedes or follows the return for which the amount was due - these time limits do not apply. To correct these errors follow the normal procedures for making adjustments as described in the rest of this guide.
You can only correct net errors below the error correction reporting threshold if they were made in returns where the accounting period ended less than four years ago, subject to the following transitional arrangements.
Transitional arrangements for the increase in time limits from three years to four years
The time limit for adjusting returns and correcting errors, including making claims, was increased with effect from 1 April 2009 from three years to four. However, in order to ensure that accounting periods that were out-of-time on 31 March 2009 are not brought back in-time by the change, transitional arrangements have been put in place.
Because of these arrangements, between 1 April 2009 and 31 March 2010 you can't correct an error made in an accounting period ending before 1 April 2006 - either by adjusting your return, or by notifying HMRC separately in writing.
- For instance, on 31 March 2009 the earliest accounting period for which you can make a return adjustment correction or error correction report or claim, whether for an understatement of tax paid or a refund of overdeclared output tax, is the accounting period ending on 31 March 2006 (the old three year rule).
- On 30 April 2009, the earliest accounting period for which you can make such an adjustment or claim would be that ending on 30 April 2006.
- Similarly, on 31 October 2009 the earliest accounting period for which you can make such an adjustment or claim would also be that ending on 30 April 2006.
- However, by 30 April 2010, the four-year time limit will have come fully into effect so that such an adjustment or claim made on that date can still go back to the accounting period ending 30 April 2006.
For non-standard tax periods, you can make adjustments on your return and notify HMRC about errors in writing between 1 April 2009 and 1 April 2010 for any accounting period ending on or after 1 April 2006, subject to this transition from three years to a four year limit.
What's the time limit for claiming back input tax?
The time limit for claiming back VAT (input tax) late was increased with effect from 1 April 2009 from three years to four. However, in order to ensure that accounting periods that were out-of-time on 31 March 2009 are not brought back in-time by the change, the following transitional arrangements apply.
- You can't make any claim under the error correction reporting procedure between 1 April 2009 and 31 March 2010 for any accounting period for which the VAT return was due before 1 April 2006.
- Thus, on 31 March 2009, the earliest accounting period for which you can make a claim is that ending on 28 February 2006 (for which the due date of the return was 31 March 2006) - the old three year rule.
- On 30 April 2009, the earliest accounting period for which you can make a claim would be that ending on 31 March 2006 (the due date of the return for that period being 30 April 2006).
- Similarly, on 31 October 2009, the earliest accounting period that can be claimed for will also be that ending on 31 March 2006.
- However, by 30 April 2010, the four-year time limit will have come fully into effect so that a claim made on that date can go back to the accounting period ending 31 March 2006.
For non-standard VAT periods, claims made between 1 April 2009 and 1 April 2010 can be made for any accounting period ending on or after 1 April 2006, subject to this transition from three years to a four year limit.
Claiming refunds
If you believe you've paid more VAT than you should have done, you may only make an adjustment using the methods directed in this guide.
Where your net error is above the error reporting threshold and results from an overdeclaration of output tax - that is, you have overstated the VAT on your supplies due to HMRC - your claim will not be paid if this would result in your 'unjust enrichment'. Unjust enrichment would happen if, for example, you passed on a mistaken VAT charge to a customer and you did not suffer loss or damage as a result of the mistaken VAT charge.
If repayment would unjustly enrich you then you may be able to make arrangements to reimburse any VAT refund to your customer if your customer bore the burden of the mistaken VAT charge. If your customer was also registered for VAT and was able to fully deduct your VAT charge as their input tax then they did not bear the burden of the mistaken charge to VAT.
If your claim for a repayment is turned down, you can appeal.
Find out how to appeal against decisions made about your VAT affairs
Other VAT adjustments or claims that are not considered to be errors
Errors in your VAT accounting in your current VAT period
If you've made arithmetical mistakes in your VAT accounting for VAT due in the current VAT period that haven't yet found their way onto a VAT return then you may simply correct the error in your current records and VAT account. If you failed to account for VAT due in the current VAT period, or failed to claim input tax entitlement due in the current VAT period, again you may simply correct the error in your current records and VAT account.
Other adjustments and claims
You may sometimes need to make adjustments as part of your normal VAT accounting, even if you haven't made an error. These include:
- retail scheme adjustments
- adjustments under the capital goods scheme for input tax on computers, land and buildings acquired for use in your business
- an approved estimation procedure
- partial exemption annual adjustments, including clawback and payback adjustments
- exports and supplies between European Union (EU) countries, including removal of goods from the UK
- issuing or receiving credit and debit notes
- claims for bad debt relief
- adjustments for expenses before registration and after de-registration
To find out more about these adjustments, read the following guides.
More about the Capital Goods Scheme in VAT Notice 706/2
Find out about supplies to other EU countries
More about adjusting your VAT for credit and debit notes
Read about reclaiming VAT on bad debts
Find out about reclaiming VAT on purchases made before VAT registration
Find out about reclaiming VAT after de-registration
Getting it right first time
Read about what you can do to avoid making errors in HMRC's guide to how to complete and file a VAT Return at the link below.
Read about how to complete and file a VAT Return
More useful links
Read about keeping VAT accounts and records
More about correcting errors in VAT Notice 700/45
More about correcting errors in VAT Notice 700/12
Retrospective claims for VAT overdeclared by motor retailers
