How to Correct Errors on Your VAT Return

Introduction

Everyone makes mistakes, and errors on VAT returns are more common than you might think. The good news is that HMRC provides clear routes to correct them — and if you act promptly and honestly, you can often avoid penalties. The method you use depends on the size of the error and whether you were careless when making it.

What Counts as an Error

An error on your VAT return might include:

• Recording the wrong amount of VAT on sales or purchases
• Claiming input VAT you weren't entitled to reclaim
• Charging VAT on a supply that should have been exempt or zero-rated
• Mathematical mistakes when adding up figures
• Forgetting to include an invoice in the correct period

If you spot an error in your records before you submit your return, simply correct your records with a clear note explaining the mistake. The correct figure will then appear on your return when you submit it.

This article focuses on errors you discover after you've already submitted a return to HMRC.

The Two Methods for Correcting Errors

HMRC offers two methods for correcting mistakes on returns you've already submitted. Which one you use depends on the size of the error.

Method 1: Adjust Your Next VAT Return

You can correct an error by adjusting your next VAT return if:

• The net value of the error does not exceed £10,000, or
• The net value is between £10,000 and £50,000 and does not exceed 1% of your Box 6 figure (total outputs excluding VAT) on the return where you're making the adjustment

To work out the net value, calculate the total amount you owe HMRC and the total amount HMRC owes you from all errors discovered. The difference between these two figures is your net error.

For example, if you've under-declared £8,000 of output VAT but also forgot to claim £3,000 of input VAT, your net error is £5,000 (in HMRC's favour). This would qualify for Method 1.

When using Method 1, you simply include the correction on your current VAT return. Add under-declared VAT or reduce over-claimed input VAT as appropriate.

Method 2: Notify HMRC Separately

You must use Method 2 and notify HMRC separately if:

• The net value of the error is between £10,000 and £50,000 and exceeds 1% of Box 6 on your current return, or
• The net error exceeds £50,000

You can also choose to use Method 2 for errors of any size if you prefer.

To notify HMRC, you can either:

• Complete an error correction notification online
• Write to HMRC with details of the error

Your notification should explain what the error was, how it happened, and the full amount involved.

Errors on Invoices

Invoices You've Issued

If you've issued an invoice with the wrong amount of VAT:

• VAT overcharged: You must account for the higher amount you charged unless you issue a credit note to your customer to correct it
• VAT undercharged: You must account for the correct (higher) amount of VAT, whether or not you issue a supplementary invoice to your customer

Invoices You've Received

If a supplier's invoice shows the wrong VAT amount:

• VAT too high: Ask your supplier for a replacement invoice with the correct (lower) amount
• VAT too low: Ask your supplier for a replacement invoice with the correct (higher) amount

If your VAT return is due before you receive the corrected invoice, submit your return using the VAT amount shown on the original invoice. You can adjust your next return once you have the replacement documentation, provided this falls within the Method 1 limits.

Penalties and Interest

HMRC distinguishes between honest mistakes and careless or deliberate errors:

• Reasonable care: If you make an error despite taking reasonable care, you won't face a penalty — but you must correct it promptly once discovered
• Careless error: An error is careless if you fail to take the care and attention a reasonable person would in your circumstances
• Deliberate error: Knowingly submitting incorrect information or deliberately failing to correct an under-declaration can result in penalties or even criminal prosecution

If you discover an error that was neither careless nor deliberate when you made it, but you don't correct it, HMRC will treat it as careless from that point.

Important note on Method 1: Simply adjusting an error using Method 1 is not considered a "disclosure" for penalty purposes. If you think an error might have been careless, you should also notify HMRC separately in writing (or via an error correction notification) to qualify for the maximum penalty reduction. This demonstrates that you've voluntarily disclosed the error.

For deliberate errors, you must notify HMRC in writing or using an error correction notification under Method 2, regardless of the error's size.

Late payment interest applies if an error means you didn't pay all the VAT due by the deadline for that VAT period.

Checking Which Method to Use

HMRC provides an online tool to help you work out how to report your error. You'll need:

• The net value of your error
• The total value of your sales (Box 6 figure)

The tool will tell you whether you can adjust your next return (Method 1) or need to notify HMRC separately (Method 2).

Keep Clear Records

Whichever method you use, keep clear records of:

• What the error was and how it occurred
• The amounts involved
• When you discovered it
• How and when you corrected it

Good record-keeping demonstrates that you're taking reasonable care and will help if HMRC has any questions.

Sources

• Check how to tell HMRC about VAT Return errors
• How to correct VAT errors and make adjustments or claims (VAT Notice 700/45)

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.