UK VAT error correction and when to use Form 652

If you’re selling in the UK and receive a notification of errors in VAT returns, then you need to follow HMRC’s process for VAT error correction. Failure to correct errors can result in a penalty and interest. The process might depend on what kind of error you’ve made, and we’ll cover the possibilities below.

If you haven’t received a notification yet but you suspect that you’ve made a mistake, it’s equally important that you check your records and follow up with HMRC as soon as possible. You can learn more about the process below! We’ll explain how to check if you need to report any errors in your next VAT return.

Types of VAT errors in the UK

Errors on invoices

Mistakes on VAT invoices can be corrected within your own bookkeeping, without involving the HMRC. The most common VAT errors on invoices are:

• Mathematical mistake in calculating the total value or VAT rate of the sale
• Charging VAT when, in fact, no VAT was due

In both cases, you should adjust your records to account for the overcharged or undercharged VAT.

It’s also possible to cancel and reissue an invoice to your customer with the correct VAT amount. This takes extra communication with your customer to and a few more steps of bookkeeping, potentially issuing a refund and then recharging.

Using a tax compliance software like Quaderno helps you in such cases. First of all, the app automatically calculates the correct VAT on your sale. If, for whatever reason, you need to cancel or reissue an invoice, the app will do that automatically, too.

Errors in a VAT return filing

Mistakes in a submitted VAT return require following specific procedures laid out by the HMRC. While most filing errors aren't penalized, HMRC checks if you took reasonable care. Businesses can face misdeclaration penalties for “careless or deliberate inaccuracies,” although the HMRC does not define what exactly counts as careless.

When you discover errors, HMRC expects you to correct them; failing to do so will result in a penalty for carelessness. You can correct errors using two methods, which we will explain below. You’ll likely have to report the inaccuracies using form VAT652.

How to amend VAT return

VAT error correction falls into two methods, depending on the amount of money involved. If you need to amend your return, assess the scope of inaccuracies in your tax declaration and then choose the appropriate method.

Essentially, you should use method 1 for lower errors fitting the criteria. Otherwise use method 2, especially for larger or deliberate errors.

VAT return correction method 1

• Use for errors up to £10,000, or between £10,000 and £50,000 if they do not exceed 1% of the current VAT Return's box 6 value.
• Adjustments are made in the current VAT Return.
• Report careless errors separately to HMRC via a letter or form VAT652 to seek penalty reduction.

VAT return correction method 2

• Use for errors over £50,000, or exceeding the 1% threshold for amounts between £10,000 and £50,000, or if errors were deliberate.
• Requires notifying HMRC via form VAT652.
• Include full details of errors, periods affected, and calculations.

You can also use this short survey from HMRC to confirm how you should report and correct your errors. The HMRC also lays out how to amend a VAT return in VAT Notice 700/45.

What is a VAT652 form?

The VAT652 form is the primary document for UK businesses to correct significant errors on past VAT returns. It's used for errors that surpass certain monetary limits and might affect VAT reporting accuracy.

VAT Form 652 is essential for compliance, as it enables businesses to voluntarily address mistakes before HMRC identifies them. Business owners should proactively submit this form once they’ve identified inaccuracies in their VAT declarations. Otherwise, if HMRC notices them first, then penalties could be harsher.

What types of errors qualify for correction with VAT652?

The following errors require the correction with VAT652:

• Errors over £50,000
• Errors that exceed the 1% threshold for amounts between £10,000 and £50,000
• Errors that were deliberate.

What if my VAT errors are below the threshold?

For smaller errors (those that require method 1, above), you can still voluntarily submit a VAT652 as a sign of good faith to the HMRC. By proactively disclosing your errors, you increase the chances that any penalties are reduced or waived completely.

How to fill out the VAT652 form

Let's explore the practical steps to completing the VAT652 form. Accurate completion is essential for UK businesses aiming to correct major VAT errors. This guide offers detailed steps for each part of the form, ensuring precise submission. Start by accessing the form online.

Step 1: Personal and business information

Enter your basic details, including:

• VAT registration number: Your unique UK VAT system ID.
• Business name and address: Must match your VAT registration.
• Contact info: Provide email and phone for HMRC to follow up.

Step 2: Specify the errors

List each error with:

• VAT period affected: Indicate the VAT period of the error.
• Error description: Clearly describe the mistake (such as "Input tax underclaimed in Q1 due to oversight").
• Correct amount: State what should have been reported.
• Net effect: Calculate the error's net value, the difference between reported and correct amounts.

Step 3: Explain the errors

Describe how the errors happened. As we explained above, HMRC wants to know if these were honest mistakes or negligence. Be truthful and concise.

Step 4: Total error calculation

Add the net values of all errors to find the total. This total determines if a VAT652 form is necessary, or if you should follow a different VAT error correction method.

Step 5: Declaration and signature

Sign the form to confirm the accuracy of the provided information. Make sure that the signer is authorized for the business, otherwise it won’t count.

Tips for completing VAT652 successfully

• Verify your calculations: Check all calculations to avoid simple errors.
• Be clear and concise: Use precise language; avoid vagueness.
• Keep copies: Retain a copy of the completed form and any related documents.

How to submit VAT form 652?

The VAT652 form should be submitted directly to the HMRC VAT error correction team. You can send the completed form by email to inbox.btcnevaterrorcorrection@hmrc.gov.uk or by post. You should receive an email to confirm that HMRC has received your submission.

Is there a deadline for VAT652?

Yes, there are VAT error correction time limits. The time limit for adjusting returns and claiming corrections is 4 years.

If you have other questions about VAT compliance in the UK, check out this UK VAT guide for online businesses.