Errors on the VAT return will now be notified online to HMRC in most cases. The old VAT652 form, previously used for this, has been withdrawn.

How it’s done

The online notification process is done via your Government Gateway log-in. The form needed can be found by searching ‘Check how to tell HMRC about VAT Return errors’ on gov.uk. You will need to have the net value of the error, and total value of sales to hand.

Businesses exempt from MTD VAT will continue to notify in writing. Note, also, that taxpayers can choose to notify HMRC in writing, instead of using the online facility, if desired.

The rules you need to know

It’s only the notification process that’s changed. The rules on how to correct errors remain the same.

The correction process depends on the size of the error. For errors with a net value of up to £10,000; or errors between £10,000 and £50,000 and representing less than 1% of the box 6 (net outputs) in the return period in which you find the errors, you can simply correct the next VAT return.

This is known as Method 1. Other errors should be notified to HMRC directly (Method 2). You can use Method 2 for errors of any size, if you prefer. Method 2 should always be used for deliberate errors.

There is a four-year time limit from the end of the accounting period to make corrections, though this does not apply to deliberate errors.

Why it matters

The importance of VAT compliance cannot be overstated. It’s not just about good practice – important though that is – it can impact your business financially, too. Interest can be charged for underdeclared VAT, and there can be penalties for errors in VAT returns that result in tax being underpaid, if HMRC considers that the error was careless or deliberate.

Careless errors can attract penalties of up to 30%. Deliberate errors can attract penalties of up to 70%. Penalties for deliberate and concealed errors can be as much as 100%. HMRC has considerable discretion over what is charged, and reductions can be made for errors disclosed without HMRC prompting; and also for the amount of cooperation given by the taxpayer when a disclosure is made.

For penalty reduction purposes, note that any error that HMRC considers careless or deliberate, regardless of size, must be formally notified to HMRC: in these circumstances, correction on the VAT return alone is not enough. If you are in any doubt as to how HMRC would categorise an error, please get in touch to discuss this with us, and we can provide further details.

Tip: Best defence - taking reasonable care

If you make an error, but have taken what HMRC considers ‘reasonable care’, you should not be charged a penalty.

Reasonable care: What does taking reasonable care mean? HMRC defines it as taking the ‘care and attention that could be expected from a reasonable person in the circumstances’. It’s also worth noting that as far as HMRC is concerned, the opposite is also true: not taking reasonable care amounts to being ‘careless’.

Taking reasonable care will look different for each taxpayer, depending on individual circumstances and abilities, but it includes basics like keeping sufficient records to form the basis of accurate tax returns; keeping your records safe; and taking advice if there’s something you’re not sure about.

How we can help

Recent research by HMRC suggests that VAT can be particularly difficult for many businesses.

We can help with a VAT compliance health check to give you confidence that you are taking reasonable care, should HMRC ever come knocking. Please don’t hesitate to get in touch.