How to correct VAT errors and report them to HM Revenue & Customs

Errors on the VAT return will now be notified online to HMRC in most cases. The old VAT652 form, previously used for this, has been withdrawn. At Rayner Essex, we support businesses in navigating these changes, ensuring that VAT errors are identified, assessed and reported correctly in line with current requirements.

How to report VAT errors to HMRC

The online notification process is completed via your Government Gateway log-in. The form can be found by searching ‘Check how to tell HMRC about VAT Return errors’ on gov.uk. You will need to have the net value of the error, and the total value of sales, to hand. We can assist in preparing this information and reviewing your figures before submission, helping to reduce the risk of further inaccuracies.

Businesses exempt from Making Tax Digital for VAT will continue to notify in writing. It is also worth noting that taxpayers can choose to notify HMRC in writing, instead of using the online facility, if preferred. Our VAT team can advise on the most appropriate approach for your business and manage the process on your behalf where required.

What are the rules for correcting VAT errors?

It’s only the notification process that has changed. The rules on how to correct errors remain the same.

The correction process depends on the size of the error. For errors with a net value of up to £10,000, or errors between £10,000 and £50,000 that represent less than 1% of the box 6 (net outputs) figure in the return period in which you find the errors, you can simply correct the next VAT return. This is known as Method 1. Rayner Essex can review your calculations and confirm whether this approach is suitable, giving you confidence that corrections are being applied correctly.

When do you need to notify HMRC of VAT errors?

Other errors should be notified to HMRC directly, and where necessary you may need support with HMRC enquiries and tax investigations contact Rayner Essex. This is known as Method 2. You can use Method 2 for errors of any size if you prefer, and it should always be used for deliberate errors. Where formal disclosure is required, we can support you through the process and, where necessary, assist with HMRC enquiries and tax investigations to ensure your position is clearly presented.

There is a four-year time limit from the end of the accounting period to make corrections, although this does not apply to deliberate errors.

Why VAT error correction matters for your business

The importance of VAT compliance cannot be overstated. It is not just about good practice; it can have a direct financial impact on your business. Interest can be charged for underdeclared VAT, and penalties may apply where errors result in tax being underpaid, particularly if HMRC considers that the error was careless or deliberate. Our role is to help you stay compliant and minimise exposure to unnecessary costs.

Careless errors can attract penalties of up to 30%. Deliberate errors can attract penalties of up to 70%, while deliberate and concealed errors can be as much as 100%. HMRC has considerable discretion over what is charged, and reductions can be made where errors are disclosed without prompting, and where full cooperation is given during the process. We can support you in managing disclosures and communicating effectively with HMRC to achieve the best possible outcome.

For penalty reduction purposes, any error that HMRC considers careless or deliberate must be formally notified. In these circumstances, correcting the VAT return alone is not enough. If you are in any doubt as to how HMRC would categorise an error, it is important to seek tax advice at an early stage.

What counts as reasonable care for VAT?

If you make an error but have taken what HMRC considers ‘reasonable care’, a penalty should not be charged. Rayner Essex work with clients to establish robust processes that demonstrate reasonable care in practice.

Reasonable care is defined by HMRC as taking the care and attention that could be expected from a reasonable person in the circumstances. Equally, not taking reasonable care is likely to be viewed as careless behaviour.

Taking reasonable care will look different for each taxpayer, depending on individual circumstances and capabilities. However, it includes maintaining sufficient records to support accurate tax returns, keeping records secure, and taking advice where there is uncertainty. Our team can help you assess whether your current processes meet this standard and identify areas for improvement.

How Rayner Essex can help with VAT error correction

Recent research by HMRC suggests that VAT can be particularly difficult for many businesses. At Rayner Essex, we provide practical, tailored support to help you manage VAT obligations with confidence.

We can help with a VAT compliance health check, giving you confidence that your processes are robust and that you are taking reasonable care, should HMRC ever review your position. If you would like to discuss your requirements, please contact us and our VAT team will be happy to assist you.