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Correction of smaller, non-deliberate errors in next VAT return

 

Must not exceed higher of £10,000 or 1% of net outputs for period of correction, subject to £50,000 cap

"(1)     Subject to paragraph (1A) below this regulation applies where a taxable person has made a return, or returns, to the Controller which overstated or understated his liability to VAT or his entitlement to a payment under section 25(3) of the Act." (SI 1995/2518, r.34(1))

"(3)     Where, in relation to all such overstatements or understatements discovered by the taxable person during a prescribed accounting period, the difference between—

(a)     under-declarations of liability, and

(b)     over-declarations of liability,

does not exceed £50,000, the taxable person may correct his VAT account in accordance with this regulation.

But if Box 6 of the taxable person's return for the prescribed accounting period must contain a total less than £5,000,000, the difference must not for these purposes exceed 1% of that total unless the difference is £10,000 or less.

(Box 6 must contain the total value of sales and all other outputs excluding any VAT – see regulations 25 and 25A and the relevant forms specified in a notice published by the Commissioners.)" (SI 1995/2518, r.34(3))

 

Over-declaration and under-declaration 

"(2)     In this regulation—

(a)     “under-declarations of liability” means the aggregate of—

(i)     the amount (if any) by which credit for input tax was overstated in any return, and

(ii)     the amount (if any) by which output tax was understated in any return;

(b)     “over-declarations of liability” means the aggregate of—

(i)     the amount (if any) by which credit for input tax was understated in any return, and

(ii)     the amount (if any) by which output tax was overstated in any return." (SI 1995/2518, r.34(2))

Must not be deliberate

The taxpayer must "discover" the error - see r.34(3), above.

Method of correction

"(4)     In the VAT payable portion—

(a)     where the amount of any overstatements of output tax is greater than the amount of any understatements of output tax a negative entry shall be made for the amount of the excess; or

(b)     where the amount of any understatements of output tax is greater than the amount of any overstatements of output tax a positive entry shall be made for the amount of the excess.

 

(5)     In the VAT allowable portion—

(a)     where the amount of any overstatements of credit for input tax is greater than the amount of any understatements of credit for input tax a negative entry shall be made for the amount of the excess; or

(b)     where the amount of any understatements of credit for input tax is greater than the amount of any overstatements of credit for input tax a positive entry shall be made for the amount of the excess." (SI 1995/2518, r.34(4) - (5))

 

Form of correction

"(6)     Every entry required by this regulation shall—

(a)     be made in that part of the VAT account which relates to the prescribed accounting period in which the overstatements or understatements in any earlier returns were discovered,

(b)     make reference to the returns to which it applies, and

(c)     make reference to any documentation relating to the overstatements or understatements." (SI 1995/2518, r.34(6))

Time limit: 4 years

"(1A)     Subject to paragraph (1B) [and (1C)]3 below, any overstatement or understatement in a return where—

(a)     a period of [4 years]3 has elapsed since the end of the prescribed accounting period for which the return was made; and

(b)     the taxable person has not (in relation to that overstatement or understatement) corrected his VAT account in accordance with this regulation before the end of the prescribed accounting period during which that period of [4 years]3 has elapsed,

shall be disregarded for the purposes of this regulation; and in paragraphs (2) to (6) of this regulation “overstatement”, “understatement” and related expressions shall be construed accordingly" (SI 1995/2518, r.34(1A). Paragraphs (1B) and (1C) deal with periods before April 2006)

Correction of smaller, non-deliberate errors in next VAT return

Correction of other errors

"Where a taxable person has made an error—

(a)     in accounting for VAT, or

(b)     in any return made by him,

then, unless he corrects that error in accordance with regulation 34, he shall correct it in such manner and within such time as the Commissioners may require." (SI 1995/2518, r.35)

Use form VAT652 to notify HMRC

Corrected return replaces previous return

"(4)     Where any correction has been made and a return calculated in accordance with these Regulations then any such return shall be regarded as correcting any earlier returns to which regulations 34 and 35 apply." (SI 1995/2518, r.39(4))

Correction of other errors
Corrected return replaces previous return

Difference between making correction and crystallising liability/right to repayment

 

“[11] ... Where Method 2 is used, the Guidance states “you must not make adjustment for the same errors on a later VAT return”; instead, a special form (form VAT 652) should be used to notify HMRC of the error correction, or a letter should be written setting out specified details to explain the error and how it arose (para. 4.4). In this way, HMRC require a trader to provide them with full details to allow them to decide how to proceed, e.g. (if there has been an underpayment of tax) by making an assessment under section 73 of VATA leading to an order to pay the underpaid VAT plus interest and any penalty or (if there has been an overpayment of tax) acknowledging the right of the trader to claim a refund pursuant to section 80 and repaying the overpaid VAT accordingly.

 

[16] ... Hence, even when HMRC decide to direct under regulation 35 that an error be corrected, they are not obliged to direct that that be done in such a way as to circumvent the limitation period to reclaim overpaid VAT set out in the primary legislation, in section 80.” (Capital Accommodation (London) Limited, §16)

 

[36] ... If the figures in the 02/05 return are changed, that will not enable the liquidator to bring a claim under section 80 to recover the overpaid VAT in relation to the six disputed invoices, since he was out of time under section 80(4) to do so even on 23 April 2008 and remains out of time.” (R (oao Capital Accommodation (London) Limited [2012] UKUT 276 (TCC), Sales J)

Difference between making correction and crystallising liability/right to repayment
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