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  • Shepherd Partnership

VAT Errors: What you need to know

If you find a VAT error on a return you have already submitted there are two ways to make the correction, depending on the circumstances.

Method 1

When this applies:

  • Non deliberate errors with net VAT payable which does not exceed £10,000, or

  • Non deliberate errors with net VAT payable between £10,000 and £50,000 and but which does not exceed 1% of the box 6 (net outputs) on the 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 errors are within the above limits.

Correcting errors using method 1 is not a disclosure for the purposes of the penalties. If the error corrected using method 1 was a result of being careless you will not be able to gain the maximum reduction penalties unless you also tell HMRC separately in writing, either by letter or by completion of the form VAT652, to tell them of the error and your grounds for seeking a reduction to the penalty.

Method 2

When this applies:

  • Errors with of net VAT payable between £10,000 and £50,000 which exceed 1% of the box 6 (net outputs)

  • Errors which exceed £50,000

  • Errors made deliberately

You may choose to use this method for small errors below the limits shown above

If you use this method you must not make adjustment for the same errors on a later VAT Return. Instead you should notify HMRC of the error correction using form VAT652.

The time limit for correcting errors is 4 years.

What happens if I do not correct VAT errors and HMRC finds them?

If HMRC find an under-declaration of VAT on your VAT Return, they will assess for the tax due and may charge interest. You may also be liable to a penalty.

Errors will be liable to a penalty if they are careless or deliberate. If you do not take steps to correct an error which is not careless or deliberate, the inaccuracy will be treated as careless and a penalty will be due.

If you need help with your VAT, please do not hesitate to get in touch.

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