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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 tell 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. Most 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.
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It is essential that you keep accurate records, and that your VAT Returns are completed 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.
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 to errors in the amount of VAT on the return immediately before or immediately after the return for which the amount was due. These can be corrected at any time.
You must take reasonable care when correcting errors. If you are careless or deliberately inaccurate when you correct an error on your return, or when telling HMRC about a correction, you may be charged a penalty.
You should investigate how the error occurred and make a note in your VAT account as described in step 4.
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 let HMRC know about these separately when you find them.
In all cases, if you find that you’ve under-declared or over-claimed tax as a result of careless behaviour you should tell 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.
Also, please tell HMRC if you’ve corrected that error on your return. It is important that you tell HMRC if you have already corrected the error, or that you will be correcting the error otherwise you may be assessed for tax and interest.
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 you will not be charged interest. See the section in this guide on what to do at the end of your accounting period.
If you find a deliberate inaccuracy in a previously submitted return, you must tell 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.
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.
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 - you must tell HMRC about these separately. What you do next depends on whether the net value of the errors is greater than the error correction reporting threshold. This is the greater of:
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 - 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 and in writing - see the section in this guide on how to tell HMRC about errors.
You can correct certain errors whose net value is below the error correction reporting threshold by adjusting your VAT Return.
At the end of the VAT period when you discovered the errors, adjust your own VAT account of output tax due or input tax claimed by the net amount of all errors. Make sure that your VAT account shows the amount of the adjustment you make to your VAT Return.
Then, adjust either box 1 or box 4 on your return, as appropriate. For example, if you discover that you didn’t 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.
You need to tell HMRC's VAT Error Correction Team, in writing, about certain errors. 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 in instead.
You must explain each error in detail by reference to your business records, including:
If you've underpaid or overclaimed VAT, you may have to pay interest.
Please send your completed form VAT 652 or letter to:
VAT Error Correction Team
HM Revenue & Customs
There are time limits for correcting errors but if the errors are errors in the amount of VAT on the return immediately before or immediately after 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 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.
The time limit for adjusting returns and correcting errors was increased with effect from 1 April 2009 from three years to four and there were transitional arrangements in place between 1 April 2009 and 31 March 2010. However, by 30 April 2010, the four-year time limit came fully into effect
The time limit for claiming back input tax late was also increased with effect from 1 April 2009 from three years to four and similar transitional arrangements applied between 1 April 2009 and 31 March 2010. And by 30 April 2010, this four-year time limit also came fully into effect.
If you believe you've paid more VAT than you should have done, you may only make an adjustment using the methods described in this guide.
Where your net error is above the error reporting threshold and results from an over-declaration 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 lose out as a result.
If this is the case you may be able to make arrangements to reimburse any VAT refund to your customer if your customer bore the cost of the mistaken VAT charge. However, 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 cost of the mistake.
If your claim for a repayment is turned down, you can appeal.
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.
You may sometimes need to make adjustments as part of your normal VAT accounting, even if you haven't made an error. These include:
To find out more about these adjustments, read the following guides.
Read about what you can do to avoid making errors in HMRC's guide to how to complete and submit a VAT Return at the link below.