Mastering VAT Compliance: How to Correct Errors and Make Seamless Adjustments
If you’ve made an error in a previous VAT return that meets specific criteria, you can rectify it by adjusting a future VAT return, as outlined in HMRC’s VAT notice 700/45. To be eligible for correction:
- The mistake must have occurred in a return for an accounting period ending less than 4 years ago.
- The net value of the error (VAT overpaid minus underpaid) should be below the HMRC reporting threshold of £10,000.
- The error must not be intentional (deliberate errors must be reported to HMRC).
- The net value of the error must be between £10,000 and £50,000, but less than 1% of the sales reported in box 6 of the VAT return for the period in which the mistake was discovered.
Calculate the net value of errors by subtracting any VAT overpaid from any VAT underpaid. If your mistake meets these criteria, amend it in your next VAT return by adding the net value to either Box 1 (tax owed to HMRC) or Box 4 (tax due to your business).
For errors not meeting these criteria, contact HMRC to report them. When in doubt, seek advice from an accountant. Additional information on the Notice 700/45 VAT adjustment process is available on GOV.UK.
Reportable Errors: Not all errors can be corrected by amending a VAT return. Report errors falling into the following criteria to HMRC:
- Errors with a net value above the reporting threshold.
- Errors made more than 4 years ago.
- Deliberate errors (note: deliberate or careless errors may incur HMRC penalties).
Notification of Errors to HMRC: If you need to report a VAT mistake to HMRC that falls outside the criteria for a VAT adjustment, use a VAT652 form. You can fill it out online at GOV.UK, download a printable version, or request a paper form by calling the HMRC helpline on 0300 200 3700.
It’s also possible to report an error to HMRC without using form VAT652, but completing the form will streamline the process for both you and HMRC. If you can’t access the form, write directly to HMRC to report a VAT error at: [Include the appropriate HMRC address].
Correcting a Mistake on Your VAT Return
If you’ve identified an error on your VAT return, especially if it means you’re owed a refund, follow these steps to make the necessary adjustments.
- Update Box 4: If the error results in a VAT refund, include the net value in Box 4 of your return.
- Keep Detailed Records: It’s crucial to maintain a record of key information, including the date of the error, the date you made the adjustment, and specific details about the mistake.
- Adjust Your VAT Records: Ensure that your internal VAT records are also updated to reflect the accurate figures.
Can I Edit a VAT Return After Submission?
If you’ve submitted your VAT return and later realize a mistake, there’s no need to panic. You have options to correct the error:
- Manual Correction: You may be able to manually correct the mistake on your submitted return.
- Report to HMRC: Alternatively, you can report the error to HMRC, seeking their guidance on the necessary corrective actions.
Time Limit for VAT Error Correction
It’s important to note that there is a specific time limit for correcting errors in your VAT return. You have a window of 4 years from the due date of the return for the prescribed accounting period in which the error occurred, especially concerning under-claimed input tax.
Remember, staying calm and taking prompt corrective measures will help ensure your VAT records remain accurate and compliant with regulations.