Even HMRC accepts that, on occasion, it's possible to make errors when completing your VAT return. Because VAT can be complex at times, it's almost inevitable that mistake or miscalculation is made from time to time. If you discover that a mistake has been made, the important thing is not to ignore it. The correct action to take depends on the amount and the circumstances of the error.
Here we take a look at what you need to do if you discover an error and the possible consequences of your mistake.
Two Main Scenarios When It Comes To VAT Errors
Some errors need not be reported to HMRC. If an error satisfies the three criteria given below, it can be corrected without needing to notify HMRC:
1. The amount of the error is £10,000 or less. 2. The error was the result of a genuine mistake, rather than a result of deliberate tax avoidance, criminal activity or dishonesty. 3. The error occurred in an accounting period which was less than four years ago.
If these criteria are met, it's just a case of altering the necessary figures on your VAT return and keeping a note of the error.
There is also no need to report errors of up to £50,000 to HMRC, provided they do not amount to more than 1% of the total sales amount (not including VAT).
Larger Errors Or Dishonest Errors Need To Be Reported
If the scale of your error is such that it doesn't meet the above criteria, it will need to be reported to HMRC's VAT correction team. The course of action which the VAT correction team will take depends on variables such as the scale of the error and how it occurred. If it becomes apparent that the inaccuracy in the return was down to dishonest or criminal intent, HMRC may well issue financial penalties or even consider a prosecution.
Remember, if you discover an error and don't report it or correct it, it could be deemed that you are deliberately not paying the tax you need to, which could lead to an unwelcome penalty. In addition, accurate VAT reporting is essential to ensure that your business's books are a true record of financial dealings.