HMRC has introduced a new way to report VAT errors, withdrawing the VAT652 form from use. For most businesses, telling HMRC about VAT mistakes is now done online.
While the process may have changed, the repercussions for mistakes remain the same: those getting it wrong could face penalties of up to 100% of the tax owed.
The new digital process for reporting VAT errors
Reporting VAT errors is now handled through your Government Gateway account. Simply search “Check how to tell HMRC about VAT Return errors” on gov.uk to find the form.
You’ll need two pieces of information ready:
- The net value of the error
- The total value of your sales
Important exception: If your business is exempt from Making Tax Digital for VAT, you can still notify HMRC in writing. Any business can choose to notify in writing if they prefer; the new online reporting isn’t mandatory, just the new default.
The rules for VAT errors haven’t changed, just how you report them
While the notification method is new, the correction rules remain exactly as they were.
The correction process depends on the size of the error:
Method 1 – Adjust on your next return: For errors with a net value of up to £10,000; or errors between £10,000 and £50,000 and representing less than 1% of the box 6 (net outputs) in the return period in which you find the errors, you can simply correct the next VAT return.
Method 2 – Notify HMRC directly: All other errors must be reported directly to HMRC using the new online process, or in writing if you prefer. You can also choose Method 2 for smaller errors if you’d rather be explicit about corrections.
Deliberate errors must always use Method 2, regardless of size.
You have four years from the end of the accounting period to make corrections, except for deliberate errors, where no time limit applies.
Why reporting VAT errors correctly matters
VAT compliance isn’t just about good practice; getting it wrong can have a significant financial impact on your business.
Interest charges apply to underdeclared VAT, and HMRC can impose penalties for errors that result in underpaid tax if they consider the error careless or deliberate. Any error HMRC deems careless or deliberate, no matter how small, must be formally notified. You can’t just correct it on your next return.
Penalties for deliberate or careless mistakes are categorised by HMRC:
- Careless errors: Penalties up to 30%
- Deliberate errors: Penalties up to 70%
- Deliberate and concealed errors: Penalties up to 100%
HMRC may offer reductions for those who disclose the error without prompting or cooperate fully during the disclosure process, but this is at their discretion.
Taking reasonable care
If you make an error but have taken what HMRC considers ‘reasonable care’, you should not be charged a penalty.
HMRC defines this as “the care and attention that could be expected from a reasonable person in the circumstances.” In practice this means:
- Keeping sufficient records to support accurate returns
- Storing your records securely
- Seeking professional advice when you’re uncertain
What is considered “reasonable care” will vary based on your business size, complexity, and resources.
How Ormerod Rutter can help
Our VAT team can speak to you about your VAT position and advise on meeting HMRC’s standards for reasonable care. We can review your processes and identify any vulnerabilities that need to be acted upon.
Whether you need help navigating the new online notification process, understanding which correction method to use, or simply want reassurance that you’re doing things right, we can help.
Get in touch today on 01905 777600 or email hello@ormerodrutter.co.uk for more information.
