A VAT return calculates how much VAT you owe HMRC or, how much they owe you. VAT returns take a look at; your total sales and purchases across a given accounting period, the amount of VAT you owe for sales and, the amount of VAT you can reclaim for purchases made by your business. 

All VAT-registered businesses must submit VAT returns, even if there is no VAT to submit or reclaim. If your business is not VAT registered, you do not need to submit VAT returns. 

The Making Tax Digital (MTD) for the VAT scheme came into effect on the 1st of April 2019. Since then, VAT returns must be submitted through an authorised HMRC MTD software. All businesses with a taxable turnover (of over £85,000) must register for VAT. 

Of course when submitting your VAT return, mistakes can happen and incorrect information can be submitted in error. If this happens, don’t worry there are steps you can take to rectify this and claim back on mistakes on your VAT from previous years. 

Mistakes on your VAT return 

If you have discovered a recorded error on your VAT return and have not yet completed your VAT account or return for the period in which you made the error, you can correct this error by amending your records. Keep a clear note to show the reason for the error and include the correct figure in your VAT account for the same period. 

If however, you have spotted an error and have already submitted your VAT return, you need to correct this by following the procedures in section 4 of this link. It is important to note that penalties may occur for incorrectly submitted VAT returns. 

Methods for correcting errors on your VAT return 

There are two methods to correcting errors on your VAT return 

Method 1 – can be used for errors that are within the following limits. 

  • 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 net outputs VAT return declaration due for the return period in which the errors are discovered. 

In order to work our the net value of your VAT errors on previous VAT returns, you need to work out the: 

  • The total amount due to the HMRC, if any 
  • The total amount due to you, if any 

If the difference between the two figures is greater than £10,000 and exceeds 1% of the net outputs, 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 VAT returns were made deliberately. 

If the error that is 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 inform HMRC in writing via letter or completing a VAT652 form. 

Method 2 – can be used for errors of a value between £10,000 and £50,000. You must use this method if the: 

  • Net value of errors found on a previous VAT return is between £10,000 and £50,000 and exceeds 1% of the net outputs VAT return declaration due for the return period when the error was discovered. 
  • Net value of errors found on a previous VAT return is greater than £50,000 
  • Errors on a VAT return were made deliberately 

To notify HMRC of an error correction, you should be able to use the VAT652 form which can be printed or, you can request it via the VAT helpline. If you cannot obtain a form, you should write to the appropriate office and provide full details of the errors including: 

  • How each error came about 
  • If it was an input tax or output error 
  • The VAT accounting period for when it occurred 
  • The VAT underdeclared or overdeclared in each VAT period 
  • How you calculate the VAT that was underdeclared or overdeclared 
  • Whether any of the errors resulted in you paying the HRMC an amount that was not due 
  • The total amount to be adjusted 

Time frame for claiming back VAT 

You have up to four years to claim back any input VAT that you did not make a claim for previously. This four year time limit however runs from the due date of the VAT return on which you should have made your original claim, not the date of the VAT invoice itself. 

To simplify this, if your company receives an invoice dated the 20th of March 2019, and fails to reclaim it in the VAT return for the period ended the 30th of April 2019, the due date of this particular VAT return is the 7th June 2019. A claim therefore, can be made via a VAT652 form up to the 31st of May 2023. 

If you are a VAT registered business and would like assistance managing your VAT returns, reach out to the Cooper Accounting team, we are here to help.