How do I correct a mistake on a VAT return?

Submitting a VAT return involves handling large volumes of transactions, and even small errors can happen. HMRC recognises this and allows businesses to correct most mistakes without penalty, provided they act promptly and follow the proper procedure.

Identifying a VAT mistake

A VAT error occurs when you report the wrong amount of VAT due or reclaimable on your return. This could happen for several reasons, including:

• Entering sales or purchase figures incorrectly

• Forgetting to include an invoice or credit note

• Claiming input VAT twice

• Using the wrong VAT rate or category

• Omitting reverse charge transactions

• Making timing errors when invoices are recorded in the wrong period

It’s important to review your VAT records regularly to identify mistakes early. Most errors can be corrected in your next VAT return, but some require a formal disclosure to HMRC.

Deciding how to correct the error

The method you use to correct a VAT error depends on its value and nature. HMRC separates errors into two categories:

1. Minor errors that can be adjusted through your next VAT return.

2. Major or significant errors that must be reported directly to HMRC.

1. Correcting small errors on your next return

If the mistake resulted in the wrong VAT being paid or reclaimed, but the net value of the error (the difference between what was reported and what should have been reported) is within certain limits, you can correct it in your next return.

The correction can be made as an adjustment to Box 1 (VAT due) or Box 4 (VAT reclaimed). This effectively increases or decreases the VAT payable or refundable for that period.

You can correct errors this way if both of the following apply:

• The net value of the error is less than £10,000, or

• The error is between £10,000 and £50,000, but less than 1% of the total sales (Box 6 figure) on the return it relates to.

For example, if your total sales for the period were £1 million, 1% equals £10,000, so any error below that can be corrected on your next return.

2. Reporting large or significant errors to HMRC

If the error exceeds these limits or was caused deliberately, you must report it to HMRC separately rather than correcting it on your next return.

This is done using Form VAT652, the official VAT error correction form. You can download it from HMRC’s website and send it by post or email.

The form requires:

• Your business details and VAT registration number

• The accounting period affected

• The amount of VAT overpaid or underpaid

• An explanation of the error and how it occurred

Once HMRC reviews your disclosure, they may issue an assessment to adjust your account or request further information. If the error was genuine and promptly corrected, penalties are often reduced or waived.

How to make the correction in practice

If you discover that you understated output VAT (for example, you forgot to include a sales invoice), you must increase your VAT liability on the next return by the amount of VAT due.

If you overstated VAT or claimed too little input VAT, you reduce your VAT liability on the next return by the appropriate amount.

It’s important to keep full working papers showing how you calculated the adjustment. These records provide evidence of good faith if HMRC later reviews your returns.

Correcting errors from older periods

If an error relates to a period more than four years old, you generally cannot correct it through your VAT return. HMRC’s time limit for adjusting past returns is four years from the end of the accounting period in which the error occurred.

If the error falls outside this time frame, contact HMRC for advice or submit a voluntary disclosure.

Penalties and interest

HMRC may charge interest on VAT that was underpaid, starting from the date the tax should have been paid until the correction date. Penalties can also apply depending on the type of mistake and whether it was careless, deliberate, or concealed.

However, penalties are often reduced if you voluntarily disclose the error before HMRC finds it. This demonstrates reasonable care and cooperation, both of which are considered when calculating potential penalties.

In most cases, if the mistake was accidental and corrected promptly, no penalty will apply.

Example of a correction through the next VAT return

Suppose your business discovered that you accidentally omitted a £2,400 VAT charge from your previous quarter’s sales. The net error is £2,400, which is below the £10,000 limit.

You can simply add £2,400 to the VAT due in Box 1 on your next VAT return. Your records should include a short note explaining the adjustment and the original invoice that caused the error.

If, however, the error had been £15,000 and your total sales were £500,000, the mistake exceeds 1% of turnover. In that case, you must disclose it using VAT652.

Record keeping requirements

You must keep detailed records of any errors and how they were corrected. These should include:

• The type and amount of the error

• The period it relates to

• Whether the adjustment was made through a return or via VAT652

• Supporting invoices, credit notes, and calculations

Records must be kept for at least six years and be available for HMRC inspection if requested.

Avoiding future VAT errors

To reduce the risk of future mistakes:

• Use VAT accounting software compatible with Making Tax Digital

• Reconcile your VAT control accounts monthly rather than quarterly

• Double-check VAT rates on all sales and purchases

• Review your returns before submission

• Keep detailed digital records and audit trails

Regular reviews by your accountant or bookkeeper can also catch small discrepancies before they develop into larger problems.

When to seek professional help

If your VAT error involves multiple periods, large sums, or complex transactions such as partial exemption or reverse charge accounting, professional advice is recommended. An accountant can help calculate the correction, complete Form VAT652, and ensure you remain compliant with HMRC’s requirements.

They can also advise on potential interest and penalties and how to mitigate them through prompt disclosure.

Conclusion

If you make a mistake on a VAT return, it is usually straightforward to correct. Small errors can be adjusted in your next return, while larger or deliberate mistakes must be reported to HMRC using Form VAT652.

Acting quickly, keeping accurate records, and showing transparency with HMRC will usually prevent penalties and protect your business’s reputation. Correcting VAT errors properly is part of good financial management and helps ensure ongoing compliance with HMRC’s VAT rules.