You will soon be able to correct errors of
up to £10,000 in your VAT returns, and
in some cases more, without making
a specific disclosure. It is tempting to
sweep up mistakes without drawing
attention to them, but doing so could
increase any subsequent penalties and
interest charged for the error.
For VAT periods that started before 1 July
2008, errors do not have to be disclosed
if their total value is not more than £2,000.
This limit goes up to £10,000 for periods
starting on or after 1 July 2008, except for
businesses with a turnover of more than
£1 million. For these larger businesses, the
limit is 1% of turnover up to a maximum of
£50,000. A potential difficulty arises under the
new penalty regime that applies to returns for
periods starting after 31 March 2008, where
the return is due after 31 March 2009.
If the error arose because the taxpayer did not
take reasonable care, or made a deliberate
misdeclaration, a voluntary disclosure can
significantly reduce the penalty.
For a disclosure to reduce a penalty, you
have to specifically write to HM Revenue &
Customs (HMRC) describing how the error
happened, give HMRC reasonable help in
quantifying it and allow HMRC access to
records necessary to verify that you have
fully corrected the error.
In future, if you find you have made errors
on a past VAT return, as well as quantifying
them, you will need to find out how they
occurred. There will be no penalty if you
took reasonable care but made a genuine
mistake. If you are confident of this, you
can safely include errors below the limit on
a subsequent return, but you should keep
evidence of the processes you followed.
If you conclude that the error occurred
because you did not take reasonable care,
you should make a separate disclosure to
HMRC even if the error is under £10,000.
From September 2008, any errors
separately disclosed to HMRC will also
attract an interest charge where that error
resulted in an underpayment of VAT.
Clearly it is far better not to make mistakes
in the first place. If you need advice on
accounting for VAT, completing your VAT
returns or correcting or disclosing errors,
do ask us.
|
