Worried you have made a VAT error and unsure what to do?

There are numerous reasons why mistakes may be made when reporting VAT. In most circumstances errors are a result of honest mistakes, whether its miscalculations or mistakes in applying VAT rates, input errors or a misunderstanding of the VAT rules in complex transactions. Other times, changes to VAT rules and regulations, and a lack of awareness or training among those responsible for VAT compliance can result in oversights. Regardless of the underlying cause, it is vital that business owners and individuals take measures to rectify any errors as soon as they become aware of them, to avoid HMRC investigation and mitigate potential penalties.

The VAT652 form is the first step in reporting identified VAT errors, and in this article we answer some of the frequently asked questions regarding VAT errors and the VAT652 form.

As with any disclosure to HMRC, it is important to take appropriate advice and guidance. If you are considering whether you need to submit a VAT652 form regarding a VAT error, speak to one of our team using the form below.

How do you correct VAT errors and adjustments?

It is important to note that the use of VAT652 is not designed for every minor mistake. Its purpose is to rectify significant errors that meet certain criteria:

• When the net value of errors found on previous VAT returns is greater than £10,000, or 1% of the total sales figure on your latest VAT Return, up to a maximum of £50,000.
• When the error is notified through voluntary disclosure. If HMRC have discovered the error prior to a VAT652 being submitted then they will follow different procedures and higher penalties may be applied. If this occurs, then submitting a VAT652 will no longer be at point.
• It is best used for genuine mistakes rather than deliberate inaccuracies. Deliberate errors should normally be disclosed differently, and specialist advice should urgently be sought given the risk of possible criminal investigation.

To correct VAT errors, the following steps should be taken:

• Complete the VAT652 form, providing details such as your VAT registration number, a description of each error, the VAT periods affected, and the corrected VAT amounts.
• Calculate the net effect of all the errors to determine the total error amount.
• Submit the form to HMRC via email or post.

HMRC will review the submission and adjust your records accordingly, which may result in either a payment due or a refund – as well as a likely dialogue to determine the level of any penalty for any underpayment.

How do I contact the HMRC VAT error correction team and report VAT errors?

To report VAT errors, the VAT652 form should be submitted directly to the HMRC VAT error correction team. You can send the completed form by email to: [email protected] or by post.

Upon submission, you will receive an automatic email response from HMRC acknowledging receipt of your form.

What is the penalty for VAT error correction?

Penalties for VAT errors will depend on the nature and severity of the error. If HMRC deems the error as “negligent”, penalties can range from 0% to 30% of the potential lost revenue. If the error is found to be “wilful and concealed”, the penalty can be as high as 100% of the lost revenue. However, these penalties can be fully mitigated or substantially reduced if the error is reported voluntarily using the VAT652 form before it otherwise comes to HMRC’s attention.

Will submitting a VAT652 trigger a VAT inspection?

The short answer is that ‘it depends’. However, by submitting a VAT652 form you are making an additional disclosure to HMRC, bringing an error to their attention. Depending on the contents of the form, including the size and nature of the error and explanations provided, HMRC may choose to raise an enquiry in order to understand the error in more detail.

We always recommend taking advice and speaking to an advisor who can help you submit the VAT652 form. If you think you need to notify HMRC of an error on your VAT return and unsure how to best proceed, contact us below.

What triggers an HMRC VAT investigation?

An HMRC VAT investigation can be triggered by various factors including:

• Significant or frequent errors in VAT returns.
• Inconsistencies or anomalies detected during routine audits.
• Discrepancies between VAT returns and business accounts.
• Tips or reports from external sources.
• Sector-specific checks, as HMRC often targets sectors where VAT errors are more common or where complex VAT issues are likely.

Businesses can correct significant errors in their VAT reporting and maintain good standing with HMRC by ensuring they understand and utilise the VAT652 form properly; avoiding potential penalties and fostering a trustworthy relationship with the Revenue.

How far back can you correct VAT errors?

Accidental VAT errors can and must be corrected for a maximum of 4 years from the date of the error. This timeframe allows businesses to rectify mistakes from previous VAT returns within a reasonable period, ensuring that their financial records remain accurate and compliant over time.

If you believe you may have made errors in your VAT filings, or require support in understanding your VAT obligations, we can support you. Our team of specialists can provide a VAT health check to understand your VAT compliance and advise on remedying any errors.  Contact our specialist team using the form below to arrange an initial conversation.