New VAT Error Correction Notice Online Form (VAT652)

22/10/2022 - 12 minutes read

HMRC launched a new VAT Error Correction Notice (VAT652) online form on 8 August 2022.

While this has not replaced the ‘print and post’ form, it is now the first and preferred option on the GOV.UK landing page (Tell HMRC about any errors in your VAT Return).

The benefits of the new VAT Error Correction Notice online form should be that HMRC will see a reduction in incomplete or incorrect forms, reducing customer contact and leading to more efficient processing.

New VAT Error Correction Notice – Summary of changes

• – the online form does not require the user to have Adobe Reader installed (as with the print and post form)
• – users can sign in via their Government Gateway account (or via email validation)
• – the user can enter contact details for confirmation and enquiries if needed
• – there is now the ability to upload supporting documents (such as calculations or explanatory letters)
• – a question has been added asking if a payment has been made and if so, the amount and date of payment (making it easier to allocate payments and process)
• – there is now the ability to save and complete the form at a later date
• – on submission, a reference number is now provided, and the user has the option to save or print a copy of the form

Though take-up has been positive since launch, HMRC would like to further encourage all VAT customers and agents to use the new VAT Error Correction Notice form.

Correcting VAT errors on a return already submitted

Errors discovered for return periods beginning on or after 1 April 2008 with a due date on or after 1 April 2009

The Penalties for Errors regime:

• – errors or inaccuracies relating to return periods beginning on or after 1 April 2008 where the due date for the return is on or after 1 April 2009 will be liable to a penalty if they are careless or deliberate
• – if a person discovers a non-careless error, HMRC expects that they will take steps to correct it – if the person does not take steps to correct it, the inaccuracy will be treated as careless and a penalty will be due
• – careless or deliberate inaccuracies relating to returns commencing on or after 1 April 2008 with a due date on or after 1 April 2009, that are being corrected using method 1 or 2 (see paragraph 4.2), will be subject to the new penalty regime
• – where careless or deliberate behaviour results in an incorrect error correction notification being made under method 2 (see paragraph 4.2) you will be subject to a penalty if it is correcting errors made on returns commencing on or after 1 April 2008 with a due date on or after 1 April 2009 – this applies regardless of whether the original errors were made despite taking reasonable care or not
• – in order for HMRC to consider any reduction to a penalty, you should tell HMRC if you have made a careless error or deliberate inaccuracy regardless of its size or value – although we also need separate disclosure for the purpose of reducing any penalty, careless errors may be adjusted on your next VAT Return subject to the limits described in this section
• – correction of deliberate inaccuracies must, however, always be notified to HMRC using form VAT652, see below for more information – in such circumstances you should complete the VAT652 and provide a description of the inaccuracy – tell HMRC the full amount of the inaccuracy and explain how and why the inaccuracy arose (continue on a separate sheet if necessary)
• – if you have adjusted a careless error or inaccuracy on your return that is within the limits described below you may still write to HMRC asking them to consider any reduction to a penalty – your letter should contain the same information that is required on the form VAT652, but it’s important that you also tell HMRC that you have made the adjustment on your return – the majority of such errors will not be careless or deliberate, so no penalty will be due – people make mistakes and HMRC do not expect perfection – when considering whether an error was careless, HMRC are simply seeking to establish whether the person has taken the care and attention that could be expected from a reasonable person taking reasonable care in similar circumstances

New VAT Error Correction Notice – Methods for correcting errors

There are 2 methods for correcting errors:

• – method 1: for errors of a net value that do not exceed £10,000, or errors of a net value between £10,000 and £50,000 that do not exceed the limit described in paragraph 4.3
• – method 2: for errors of a net value between £10,000 and £50,000 that exceed the limit in paragraph 4.3, or for net errors greater than £50,000.00, or if you so choose, for errors of any size

See paragraph 4.6 and paragraph 4.7 for further details on time limits and the transitional period extending the time limits from 3 to 4 years.

Method 1

For errors of a net value that do not exceed £10,000, or errors of a net value between £10,000 and £50,000 that are within the limits described below.

You can use this method to adjust your VAT account and include the value of that adjustment on your current VAT Return providing the:

• – the net value of errors found on previous returns does not exceed £10,000
• – the net value of errors found on previous returns is between £10,000 and £50,000 but does not exceed 1% of the box 6 (net outputs) VAT Return declaration due for the return period in which the errors are discovered

To work out the net value of VAT errors on previous returns, you should work out the:

• – total amount due to HMRC, if any
• – total amount due to you, if any

If the difference between the 2 figures is greater than £10,000 and exceeds 1% of the box 6 (net outputs) VAT Return declaration due for the current return period during which the error is discovered, you must use method 2. You must always use method 2 if the net errors exceed £50,000 or if the errors made on previous returns were made deliberately.

Correcting errors using method 1 is not a disclosure for the purposes of the new penalties rules described in paragraph 4.1. If you consider that the error corrected using method 1 was a result of careless conduct you will not be able to gain the maximum reduction of the penalty unless you also tell HMRC separately in writing, either by letter or by completion of the form VAT652, of both:

• – the error
• – your grounds for seeking a reduction to the penalty

This will be an unprompted or prompted disclosure depending on the circumstances.

Method 2

For errors of a net value between £10,000 and £50,000 which exceed the limits described below, or errors which exceed £50,000 or for errors of any size.

You must use this method if the:

• – the net value of errors found on previous returns is between £10,000 and £50,000 and exceeds 1% of the box 6 (net outputs) VAT Return declaration due for the current return period during which the error was discovered
• – the net value of errors found on previous returns is greater than £50,000
• – errors on previous returns were made deliberately

You may, if you wish, use this method for errors of any size which are below the limits in paragraph 4.3 instead of a method 1 error correction. If you use this method you must not make adjustments for the same errors on a later VAT Return.

When notifying HMRC of an error correction you should use form VAT652. This can be printed or you can request a form by contacting the VAT helpline.

If you’re unable to obtain a form you should, by reference to business records in your possession, write to the appropriate office in paragraph 4.11 and provide full details of the errors including:

• – how each error arose
• – the VAT accounting period in which it occurred
• – if it was an input tax or output error
• – the VAT underdeclared or overdeclared in each VAT period
• – how you calculated the VAT underdeclared or overdeclared
• – whether any of the errors resulted in you paying HMRC an amount that was not due
• – the total amount to be adjusted

If the error was an amount underdeclared include sufficient detail about the error on a separate sheet if necessary, to enable HMRC to decide whether they should charge interest. You can find further information about interest in Default interest (VAT Notice 700/43).

Which method should I use

If the net value of errors does not exceed £10,000 or is between £10,000 and £50,000 but does not exceed 1% of the box 6 (net outputs) VAT Return declaration due for the current return period during which the errors are discovered, you can use method 1 or 2.

If they are between £10,000 and £50,000 and exceed 1% of the box 6 (net outputs) VAT Return declaration due for the current period during which the errors are discovered, or are greater than £50,000 you must use method 2.

If the errors on previous returns were made deliberately you must use method 2.

How can MCL Accountants help?

Contact MCL Accountants on 01702 593 029 if you have any queries on New VAT Error Correction Notice or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.