October 30th, 2012 / Insight posted in

Four years to fix VAT errors

AW writes: We have discovered that our VAT account in our bookkeeping records doesn’t tie up with the VAT returns as it should. All the returns for at least two years and the associated bookkeeping are correct, and the problem appears to relate to some time before that. We suspect that the error will be in the bookkeeping rather than the VAT returns we have submitted. How far back do we have to go to check, or is there a point in time beyond which the VAT inspector stops looking?

As long as the error is what HM Revenue & Customs would describe as “careless”, the time period in which you are required to correct VAT mistakes is four years. If dishonesty or some form of deliberate behaviour is involved, it becomes 20 years, writes Adrian Houstoun, VAT partner at Kingston Smith LLP. You should, therefore, go further back in your records to find out where the problem began.

If you can identify the error and demonstrate that it is solely in the bookkeeping and that the VAT returns are correct, then it is merely a matter of correcting your accounts.

If there is a “careless” error in the VAT returns, and you can identify that it has occurred within the past four years, you have an obligation to correct the error.

Net errors below £10,000 of VAT, or less than both £50,000 and 1% of your net outputs in box 6 of your returns, can be corrected through your next VAT return. Above this, you should report the errors to your VAT office using the form VAT652, or by a covering letter.