You Found a Mistake on a VAT Return You Already Filed

First, is it already filed?

If you catch the error before submitting, there is nothing to report. Correct your VAT records, keep a note of why, and file the right figure.

Once the return is submitted, HMRC's guidance on correcting VAT errors (VAT Notice 700/45) applies. It describes two methods.

Method one: correct it on your current return

Smaller errors can be corrected by adjusting the VAT return you are about to file. HMRC sets the limit in two parts: a fixed net value, and a middle band where the error must also stay within a percentage of the net outputs you declare in Box 6 for the period. The exact figures are on GOV.UK and are the thing to check before you rely on this route.

You also need a record of the correction in your VAT account: the date you found it, the period it relates to, the documents involved, and whether it affected input tax or output tax.

Method two: tell HMRC separately

Larger errors must be reported to HMRC separately, either through its online error correction notification or in writing to the VAT Error Correction Team. You can use this route for an error of any size if you prefer, and you must use it if the net error is above the upper limit or if earlier errors were made deliberately.

Refund claims for overpaid VAT are only accepted with the information HMRC lists in its guidance, so read the notice before you send one.

HMRC's guidance says you should usually wait until the end of your current accounting period before choosing a method. The limits are judged on the net value of the errors you have found, so you may have more than one to include.

Penalties, interest and time limits

If you paid less VAT than was due by the due date, late payment interest applies. Careless or deliberate errors can also attract penalties. HMRC's guidance says that correcting a careless error through method one does not count as telling HMRC about it, so if you want the maximum reduction in any penalty you need to disclose it to them separately.

As a general rule you can correct errors for four years, counted from the end of the relevant accounting period. That limit does not apply to deliberate errors.

What makes errors less likely

Most VAT corrections trace back to the same few causes: an invoice entered twice, a bank transaction categorised with the wrong VAT treatment, or a return filed while imports were still awaiting review.

Reviewing every imported transaction before you file, and reconciling the figures to the bank, prevents many of them. It is dull, and it is cheaper than a correction.