What to do if you made an error on your VAT return

If you discover a mistake on your VAT return, it is crucial to take action as soon as possible. This guide will help you address both minor oversights and more serious compliance issues effectively. We’ll outline the steps you can take to correct these issues and avoid potential penalties.

Ensuring that your VAT return is accurate and complete upon submission is essential. Mistakes, while common, require prompt corrections through adjustments or claims to HMRC to avoid penalties. This section details how to handle these adjustments based on the type and severity of the error.

In this article, we will provide you with guidance on how to correct errors and make adjustments or claims on your VAT return. We will also discuss the different types of errors that can occur on a VAT return, as well as the penalties and fines that may be imposed if you fail to correct a mistake. By following the steps outlined in this article, you can ensure that your VAT return is accurate and complete, and avoid any unnecessary penalties or fines.

Understanding VAT Returns

As a business owner, registration for VAT becomes mandatory once your annual sales exceed the designated threshold. VAT, a tax applied to the value added to goods and services, affects most UK business transactions. Upon registering for VAT, you’ll receive a VAT registration number and must diligently maintain records of all sales and purchases.

The Basics of VAT

When you sell goods or services, you must charge VAT on the sale price. This is called output tax. Business-related purchases may incur VAT, known as input tax, which you can generally reclaim against the VAT you charge, referred to as output tax. Managing VAT effectively means understanding how to reclaim VAT on business expenses, ensuring you pay HMRC only the net difference between your collected and paid VAT.

Every quarter, you are required to submit a VAT return to HMRC, detailing your total output tax, input tax, and the resulting net VAT due. This process underscores the necessity of a comprehensive understanding of VAT, as emphasised in the VAT accountants’ guide to VAT, ensuring accurate reporting and timely payment to HMRC.

Common VAT Errors

When you complete your VAT return, you must ensure that all the figures are accurate. Common VAT errors include:

• Entering incorrect figures for output tax or input tax
• Failing to account for all the output tax you have charged on your sales
• Failing to claim all the input tax you have paid on your purchases
• Failing to account for all the sales or purchases you have made
• Failing to submit your VAT return on time

If you make a mistake on your VAT return, you must correct it as soon as possible. The process for correcting errors on VAT returns will depend on the nature of the error, its value, and whether it is a simple mistake or a deliberate error. You can correct errors in returns for the preceding 4 years, as long as the net value of the errors is either £10,000 or less or between £10,000 and £50,000. If the error is more than £50,000, you must notify HMRC as soon as possible.

It is important to keep accurate records of your sales and purchases, and to ensure that your VAT returns are submitted on time. For assistance with VAT returns, it’s advisable to consult a qualified accountant or explore technology solutions like accounting software that can simplify VAT management, ensuring compliance and accuracy.

Identifying Mistakes

Accuracy in VAT returns cannot be overstated; even minor errors can lead to significant penalties. Prompt identification and correction of these errors are imperative. This part of the article provides a detailed approach to identifying and rectifying errors in your VAT returns to ensure compliance and accuracy.

Reviewing VAT Returns

Reviewing your VAT returns is the first step in identifying any mistakes. Make sure to carefully review all the figures in your VAT return, including the box 6 figure, which is the total value of your sales and purchases. Check that the figures match your records and invoices. If you notice any discrepancies, investigate them further.

Types of VAT Errors

There are several types of VAT errors that you should be aware of, including:

• Errors in box 1: This box represents the VAT due on your sales. Make sure that the figure is accurate and includes all the VAT due.
• Errors in box 4: This box represents the VAT you are reclaiming on your purchases. Make sure that the figure is accurate and includes all the VAT you are entitled to reclaim.
• Errors in box 6: This box represents the total value of your sales and purchases. Make sure that the figure is accurate and includes all the sales and purchases.
• Errors on invoices: If the wrong amount of VAT was shown on an invoice, you should correct it as soon as possible. This section does not apply where there’s been a change in the consideration for the supply, that is, if the price has changed.

Identifying mistakes in your VAT returns is crucial to maintaining accuracy and avoiding penalties. Make sure to review your VAT returns carefully and be aware of the different types of VAT errors. If you do identify any mistakes, correct them as soon as possible to avoid any further issues.

Correcting Errors on VAT Returns

Mistakes on your VAT return can be rectified through specific steps, tailored to the error’s nature and gravity.

Adjustments for Minor Errors

If you have made a minor error on your VAT return, such as a small mistake in your calculations, you can make an adjustment on your next VAT return. This adjustment should be made in the box that corresponds to the original error.

Submitting Form VAT652

If the error is more significant, you will need to submit a Form VAT652 to HMRC to correct it. This form should be used if you need to make adjustments to a VAT return that covers a period that ended more than 4 years ago. You will need to provide details of the error and the correct figures for the relevant period.

Contacting the VAT Error Correction Team

If you have made a serious error on your VAT return, or if you are unsure how to correct it, you should contact the VAT Error Correction Team. You can write to them at the following address:

VAT Error Correction Team
HM Revenue and Customs
BX9 1EW

Legal and Financial Implications

If you have made a mistake on your VAT return, it is important to understand the legal and financial implications. In this section, we will discuss the penalties for errors, interest on corrections, and the reporting thresholds.

Penalties for Errors

If you make an error on your VAT return, you may be subject to penalties. The penalty regime is based on the amount of tax due and the severity of the error. For example, if the error is due to carelessness or neglect, the penalty may be up to 30% of the additional tax due. If the error is deliberate, the penalty may be up to 100% of the additional tax due.

Interest on Corrections

In addition to penalties, you may also be required to pay interest on any additional tax due. The interest is calculated from the date the tax was due to the date it is paid. The current rate of interest is 2.6%.

Thresholds and Reporting

It is important to note that there are reporting thresholds for correcting errors on your VAT return. If the net value of the error is over £10,000, you must use the VAT652 form to correct the error. If the net value of the error is under £10,000, you can correct the error on your next VAT return.

If you have made an error on your VAT return and you believe that you are due a refund, you can make a claim for the tax due to you. However, it is important to note that the same penalty regime applies to claims as it does to errors.

Professional Assistance

Professional assistance can be invaluable in correcting VAT return errors. Consulting an accountant is advisable under circumstances such as:

When to Consult an Accountant

• If you are unsure about how to correct the mistake on your VAT return, an accountant can help you navigate the process and ensure that you are following HMRC guidelines.
• If you have made a mistake that could result in a penalty or an investigation, an accountant can help you mitigate the damage and ensure that you are in compliance with all applicable laws and regulations.
• If you are a small business owner and do not have the time or resources to manage your VAT returns, an accountant can help you with VAT management and ensure that your returns are accurate and timely.

Using Software for VAT Management

If you prefer to manage your VAT returns on your own, there are many software options available that can help you with VAT management. Here are some benefits of using software for VAT management:

• Increased accuracy: Software can help you avoid mistakes and ensure that your VAT returns are accurate.
• Time-saving: Software can automate many of the tasks involved in VAT management, such as data entry and calculation, saving you time and effort.
• Cost-saving: Using software can be more cost-effective than hiring an accountant, especially if you have a small business with a limited budget.

However, it is important to note that software is not infallible, and mistakes can still occur. It is important to double-check your returns and ensure that they are accurate before submitting them to HMRC.

Preventative Measures

To avoid the potential costs and time involved in correcting VAT return errors, implementing preventative measures is crucial. These strategies can significantly reduce the risk of errors, ensuring the accuracy of your VAT submissions.

Maintaining Accurate Records

One of the most important preventative measures you can take is to maintain accurate records. Keeping detailed records of all your transactions will help you to identify any errors or discrepancies before you submit your VAT return. This includes keeping copies of all invoices and receipts, as well as maintaining a VAT account that tracks all your VAT transactions.

By maintaining accurate records, you can quickly and easily identify any errors and correct them before they become a problem. This will save you time and money in the long run, as well as ensure that your VAT return is accurate.

Regular VAT Inspections

Another important preventative measure is to schedule regular VAT inspections. A VAT inspection is an opportunity for HMRC to review your VAT records and ensure that you are complying with all VAT regulations. By scheduling regular VAT inspections, you can identify any errors or discrepancies before they become a problem.

During a VAT inspection, HMRC will review your VAT records to ensure that they are accurate and up-to-date. They will also check that you are charging the correct amount of VAT on your sales and that you are claiming the correct amount of VAT on your purchases.

By scheduling regular VAT inspections, you can ensure that you are complying with all VAT regulations and that your VAT return is accurate. This will help you to avoid costly penalties and fines for non-compliance.

HMRC Policies and Procedures

If you have made an error on your VAT return, it is important to understand the policies and procedures that HM Revenue and Customs (HMRC) has in place to deal with such errors. This section will provide you with an overview of the penalties for errors regime and how to notify HMRC of a non-careless error.

Understanding the Penalties for Errors Regime

HMRC has a penalties for errors regime in place to ensure that taxpayers take reasonable care when submitting their VAT returns. The regime is designed to encourage taxpayers to take steps to prevent errors and to correct any errors that are made as soon as they are discovered.

If you make an error on your VAT return, the penalties for errors regime will determine the level of penalty that you will be required to pay. The level of penalty will depend on the severity of the error and whether or not you have taken reasonable care to prevent the error from occurring.

How to Notify HMRC of a Non-Careless Error

If you have made a non-careless error on your VAT return, it is important to notify HMRC as soon as possible. You can do this by writing to the VAT Error Correction Team at the address provided in VAT Notice 700/45.

When notifying HMRC of a non-careless error, you should provide details of the error and explain why you believe it was not a careless error. You should also include any supporting evidence that you have to support your claim.

It is important to note that if you do not notify HMRC of a non-careless error within the specified time limit, you may be subject to penalties under the penalties for errors regime.

After Correcting a VAT Error

Once you have corrected an error on your VAT return, it is important to take certain steps to ensure that your VAT account is reconciled and that any queries from HMRC are dealt with promptly.

Reconciling Your VAT Account

After you have corrected your VAT error, you should reconcile your VAT account to ensure that it is accurate and up-to-date. This involves checking that the total value of sales and purchases on your VAT return match the figures in your business records.

If you find any discrepancies, you should investigate them and make any necessary corrections. It is also a good idea to keep a record of your reconciliation process in case HMRC asks to see it.

Dealing with HMRC Queries

If HMRC has any queries about your VAT return, they may contact you by mail or phone. It is important to respond to these queries promptly and provide any information that HMRC requests.

If you have corrected an error on your VAT return, you should inform HMRC of this as soon as possible. Failure to do so may result in HMRC charging interest or tax on the amount of the error.

UK businesses are legally bound to maintain precise records and submit accurate VAT returns. Prompt correction of any errors is crucial to sidestep penalties.