How to correct VAT Errors – When to notify HMRC and how do I use the Form VAT652?
If you discover an error that has been made on a previous VAT return, you must ensure the necessary steps are taken to rectify this or you could face penalties in addition to the VAT you owe.
There are two different ‘routes’ that may be taken to notify HMRC of an error and which one you take depends on its value.
1. Is the VAT error less than £50,000 or £10,000?
If the error is less than the greater of £10,000 or 1% of turnover (subject to a maximum of £50,000), it can be adjusted manually through the next VAT return. It is advised the error is still notified to HMRC’s VAT Error Correction team to demonstrate absolute compliance, and whilst HMRC will not charge interest they could still, in theory, decide to levy penalties against the error. Any potential penalty could be mitigated through cooperation and full disclosure which is why telling them about the error is important.
2. VAT errors over £10,000 or £50,000?
If the error exceeds £10,000 or £50,000 formal notification must be made to HMRC via a letter to the VAT Error Correction team or completion and submission of Form VAT652 (found here). The Form can be filled out online and requires information as to how the error arose. Due to the value of errors that require completion of Form VAT652, HMRC generally levy penalties against such errors.
What would trigger a VAT penalty?
The amount of the penalty will be determined on exactly how the penalty arose and then subsequently how compliant and transparent the taxpayer was in notifying HMRC. For instance, if HMRC consider the error to be “careless”, the penalty could be anything between 0-30% of the potential lost revenue depending then on the level of taxpayer disclosure. If HMRC consider the error to be “deliberate and concealed”, the taxpayer could face penalties of up to 100% of the potential lost revenue.
Penalties will vary on a case-by-case basis as they are dictated not only by the error but also the taxpayer’s actions once the error is identified.
What should I do if I get a VAT penalty?
We encourage anyone who could be facing a HMRC penalty to contact a member of the Centurion VAT team immediately to establish whether you have grounds to appeal against any potential penalty. There are strict 30 day time limits for making appeals against VAT assessments and penalties so it’s important to act promptly.
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