Handling VAT errors and adjustments correctly

Honest mistakes in your VAT returns are bound to happen, even HMRC acknowledges this. Nicola Roby, explains what steps you must take to put them right and what other tax adjustments you might need to consider.

Making a mistake is easy, but putting it right can often be quite the opposite.

Like everything else, that’s true for VAT returns. Different types of error require different actions to correct them.

If the correction requires you to issue an amended invoice or credit note to a client, as long as your bookkeeping is carried out correctly the VAT adjustment in the corresponding return will be taken care of without further action. If the correction doesn’t involve issuing a revised invoice or credit note, for example, where you’ve reclaimed too much or too little VAT for a purchase, you’ll need to make a manual adjustment to your bookkeeping records.

No further action will be required as long as the adjustments are within the same VAT return period or, if not, their total value doesn’t exceed the limits allowed by HMRC.

Where the total value of the errors exceeds £10,000, or if greater, 1% of the turnover figure shown in Box 6 of the return in which the correction is made (up to a maximum of £50,000), you must send a separate report (voluntary disclosure) to HMRC.

Even if the corrections don’t require a voluntary disclosure, it’s sometimes advisable to make one anyway as this will give you extra protection from penalties.

VAT corrections can of course increase or decrease business profits and therefore affect corporation tax and income tax bills. For example, where a business incorrectly fails to charge VAT on a sale and, for whatever reason, it’s not possible to issue a corrective invoice to the customer. When the error is corrected the extra VAT paid to HMRC will reduce the business’s profit. As long as the error and the correction fall in the same financial year there’s no problem, but if they don’t the business will need to revise its accounts to reflect the adjustment to profit.

Take care with VAT corrections which fall in a later financial year than the original transactions as you may need to make an adjustment to the annual accounts in which the error arose.

Dealing with VAT errors can often be a trick business and sometimes it’s best to seek expert advice. If you need our help please contact us.


This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.

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