Chapter 7: Errors, Penalties and Communicating VAT Information

Question 1

Define net VAT error.

Answer 1

The net VAT error is the additional VAT due to HMRC, minus any VAT that is claimable but not yet claimed

Question 2

How are single errors corrected in the VAT return? (Provided these are below the threshold and not deliberate)

Answer 2

• an output tax error is adjusted in box 1
• an input tax error is adjusted in box 4

Question 3

How are several errors corrected in the VAT return? (Provided these are below the threshold and not deliberate)

Answer 3

If the net error resulted in VAT being overpaid:
- include in box 4 as additional input tax

If the net error resulted in VAT being underpaid:
- include in box 1 as additional output tax

Question 4

How should errors that need to be separately disclosed be reported?

Answer 4

They should be reported using form VAT 652 or by sending a letter to HMRC. Penalties may apply.

Question 5

What can HMRC do if they find VAT errors, and what is the penalty for discovery?

Answer 5

HMRC can issue a discovery assessment to collect unpaid VAT.

The penalty will be higher than if the error was voluntarily disclosed.

Question 6

What is the good compliance period for quarterly and annual VAT returns, and what must the taxpayer do?

Answer 6

• Annual returns – 24 months (2 submissions)
• Quarterly returns – 12 months (4 submissions)

To reset penalty points, all returns must be submitted on time, and all returns due in the previous 24 months must have been submitted

Question 7

What are some reasonable excuses a taxpayer may have for not being charged penalties?

Answer 7

• Death of a partner or close relative
• Serious illness of the taxpayer or a close relative
• Complete loss or destruction of accounting records due to events like fire or flood
• Written evidence suggesting that VAT may not be due on a supply