Error Correction

 

Subject to certain conditions, a person can correct on a VAT return certain errors which he made on one or more previous returns. The rules apply to errors both in favour of the trader and HMRC and apply whether the net effect is in favour of ether party. If an error is adjusted in accordance with the conditions, no default interest arises.

 

Conditions for Correcting Errors

 

The conditions for making such a correction are as follows:-

 

    • All overdeclarations and underdeclarations of liability that are discovered during the course of a return period are corrected on the return for that period. An ‘underdeclaration of liability’ is the sum of all input tax overstatements and all output tax understatements. An ‘overdeclaration of liability’ is the sum of all input tax understatements and all output tax overstatements

 

    • The difference between the underdeclaration of liability and the overdeclaration of liability does not exceed £2,000.

 

    • If any overstated output tax exceeds any understated output tax, the excess is shown as a negative entry in the tax payable portion in the VAT account which is kept in accordance with reg.32(1)

 

    • If any understated output tax exceeds any overstated output tax, the excess is shown as a positive entry in the tax payable portion in the VAT account which is kept in accordance with reg. 32(1)

 

    • If any overstated input tax exceeds any understated input tax, the excess is shown as a negative entry in the tax allowable portion in the VAT account which is kept in accordance with reg. 32(1)

 

    • If any understated input tax exceeds any overstated input tax, the excess is shown as a positive entry in the tax allowable portion in the VAT account which is kept in accordance with reg. 32(1)

 

    • All corrections refer to the returns to which they apply and

 

    • All corrections refer to such documentation as relates to the errors.

 

 

 

 

Current Period Correction

 

HMRC usually do not assess default interest if an underdeclaration is no more than the limit and is correctly adjusted in the trader’s VAT account and included on the current return (Leaflet 700/45/March 2002, para. 4.2).

 

However, this practice applies only to underdeclarations corrected on a VAT return. From 1 September 2008, default interest will be charged on voluntary disclosures of whatever amount if they are not adjusted for on a VAT return. See the section below dealing with voluntary disclosure.

 

For help and advice with your HMRC tax investigation call 0800 471 4546. Don’t delay, call today.

 

More Information

KinsellaTax - Obligations of a VAT Registered Person - Error Correction - HMRC Publication on Error Correction

HMRC Publication on Error Correction   Notice 700 (April 2002), para. 19.11 covers this area.   Example 1   Joe prepares calender quarterly VAT returns. Last…
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