VAT is a complicated tax – perhaps one of the most complicated there is for most SMEs. So, if you make a mistake, what do you need to do to amend your VAT return?
Depending on when you spot the error and how much it’s for, there are different approaches you need to take.
If your error is for less than £10,000, what is the procedure?
You don’t need to report to HMRC when you’ve made an error for less than £10,000.
However, you should voluntarily contact them about it as soon as you can. Notify them by letter explaining when you discovered the error, why you made the error, the amount of erroneous VAT, and the reporting period you need to make the correction for.
When you submit your next VAT return:
- if you owe HRMC money, add the amount to the net value on box 1
- if HMRC owe you money, add the amount to box 4
If your error is for less than £10,000, what are the penalties?
The chances are the HMRC will impose a penalty.
If you have notified them of the error, they will generally go easier on you because you have shown awareness and demonstrated honesty. You may get no penalty at all.
However, if they discover the error, for example during a VAT inspection, the penalty applied is likely to be far harsher.
The penalties range from:
- 30% for careless mistakes
- 70% for deliberate mistakes
- 100% for mistakes that were deliberate and where HMRC think you have tried to conceal them
Depending on when the mistake occurred, you may be charged interest on the penalty too.
If your error is for more than £10,000, what is the procedure?
For errors above £10,000 you must make a formal notice to HMRC informing them of the incident using Form VAT 652.
If you can’t use this form, you should write to HMRC detailing:
- the reasons behind each error
- the VAT period(s) in which they occurred
- whether an error was input or output VAT
- how much VAT was over- or under-declared on each error
- the method your use to calculate the VAT over- or under-declaration
- did any of the errors mean you paid HMRC an amount that it wasn’t entitled to?
- what is the total final adjustment needed?
HMRC will be looking for specific and sufficient details on each error – they will use the information you provide them with in their decision about whether they should charge you interest on your penalties.
You should then send your letter to:
HM Revenue and Customs
VAT Error Correction Team – SO864
Once HMRC have received your letter, their VAT Error Correction Team will use the sums you have given them to issue a correction which will tell you what you owe them.
Smart Team – talk to us about VAT
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