How Do I Correct VAT Errors?


Vat Return errors can burden your financials if you show a reckless error or commit a mistake intentionally just to evade any VAT charges. HMRC inspects the VAT returns after they have been submitted at the end of each financial year.

Similarly, what if you have found an error after the VAT returns have been submitted to the HMRC? For this, you don’t need to panic as you can adjust your error by rectifying them in the next VAT returns unless your error falls in the mentioned HMRC criteria.

In this article, we will walk you through the VAT errors you can possible make along with their rectification and correction process perfectly in line with the HMRC rules and regulations. So, let’s dive deep into the significant discussion to find a solution for the VAT errors!


No need to panic if you have made a VAT error as professional accountants at AccountingFirms can help you get out of this stress without any further delay.


Nature of VAT Errors

The nature of VAT errors spans different kinds of errors from moderate to critical errors. Following is the list of VAT errors, a person can possibly make while submitting VAT returns or during entering the VAT records:

  1. Error in the VAT records
  2. Overpayment/underpayment of VAT
  3. Disagreement over the VAT with the HMRC
  4. When HMRC VAT policies are being challenged in court, you can claim a refund for it.
  5. Errors on the received/issued Invoices

To sort out the above problems, you are primarily required to determine if you have already sent the VAT returns or not. If you have not sent the VAT yet, you can correct your VAT records or invoices. Besides, the level of VAT errors can help you in correcting the VAT by adding or decreasing the VAT records if the record in the invoice you issued was too high or too low respectively.


How to Correct VAT Errors?

Correcting VAT errors consists of the two methods described by HMRC in detail. These two methods are defined as follows and you have to find which method will be used after determining the nature and threshold.

  • Method 1
  • Method 2

Method 1 is used after calculating the Net value of VAT errors found on your previous returns. It is a difference between the VATS you owe to HMRC and the VAT HMRC owes to you. After calculating this difference, you compare the Net VAT error with the threshold described in Method 1.

The first threshold is £10,000 and the Net VAT error value should be less than this. Otherwise, you have to correct this error in the current VAT returns. Secondly, if the Net VAT error falls between £10,000 and £50,000, but it is no more than 1% of the total value of the net output (The difference between the VAT you have paid on your business goods and services and received on the sale of your goods and services).

Method 2 deals with the errors having a Net VAT error between £10,000 and £50,000 and it is more than the 1% of the Net output value. Conversely, if you make errors deliberately to hide your VAT dues, you will use method 2.

One thing to remember here is that you cannot rectify the error for the accounting period in which you are submitting or sending your VAT returns. Instead, you can correct them only in the following accounting period. The VAT errors committed during the previous four years have been allowed to rectify by the HMRC.


How to Report VAT Error To HMRC?

You will have to pay a penalty if the VAT Return error was made on or after the accounting period of 1st April 2008 with a due date of 1st April 2009. It is applicable only if you made a reckless or deliberate error.

On the other hand, if you discover your mistakes and rectify them yourself, you will not pay a penalty. For the inaccuracies that happened unintentionally, you can correct yourself in the next accounting period or notify the HMRC.

For this, you will use the form of VAT652 and send it to the VAT Error Correction Team office along with your VAT registration number.


Penalties For Making VAT Return Errors

If you make a deliberate VAT error, HMRC has the right to charge with a penalty. The penalty varies according to the nature of inaccuracies or wrong VAT records.

  1. You will pay a penalty of 0%-30% of the total value of careless or minor VAT errors.
  2. You will pay a penalty of 70% of the total value of the deliberate VAT errors.
  3. You will pay a penalty of 100% of the total value of the deliberate and disguised VAT errors.

However, you can avoid these higher penalties if you report your VAT errors, deliberate or careless, to the HMRC. Unreported VAT errors come back at a greater cost. Even if you have corrected the inaccuracies, you can still notify HMRC about these corrections and why they happened. It will help you get out of the legal proceedings and the following penalties charged by the HMRC.


The Bottom Line

The conclusion is to find the type of error and at what time it has been discovered. Before you submit your VAT returns, you can correct them immediately. Otherwise, you have to wait for the next accounting period in which you can adjust the VAT records or invoices.

On the other hand, HMRC has defined two methods to correct VAT errors. These thresholds determine which method to use and whether you should notify HMRC or not about those mistakes. If you conceal your VAT return errors, you will be penalised with a charge of up to 100% of the total value of the VAT error.


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Disclaimer: All the information provided in this article on Vat Return Errors, including all the texts and graphics is general in nature. It does not intend to disregard any of the professional advice.