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VAT errors

Q: I have a medium sized firm with a total taxable turnover for the year of £6m split evenly over 4 VAT quarters. Unfortunately, having reviewed my VAT returns over the last 12 months I have found that I inadvertently claimed 100% of the VAT on 3 cars purchased, which are available for private, as well as business, use which amounts to £12k over-claimed. How should I correct this VAT error?

A: Normally if a net VAT error exceeds £10k VAT due to or from HMRC, then an error notification is necessary unless it is below 1% of the next VAT return’s box 6 figure. Here 1% of the next VAT return’s box 6 figure will be £15k, so higher than the £12k VAT error; there is no need to complete an error notification as the next VAT return can be amended in HMRC’s favour. This is covered in more detail in chapter 4 of Notice 700/45. However, in order to “notify” HMRC of this error for penalty mitigation purposes, it would still be necessary to inform them of the error by letter of VAT 652 (but ensure the box is ticked to say the error has / is being corrected on the VAT return).