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1. Overview

1.1 What this notice is about

This notice explains how to:

• amend your VAT records if you discover they contain errors
• correct errors you discover on VAT Returns you鈥檝e already sent to us
• claim a refund if you鈥檝e overpaid VAT, or not claimed enough credit on a return
• claim a refund of VAT if you disagree with our decision on the VAT treatment of a supply
• claim a refund of VAT if our practices in relation to VAT are being challenged in the court

1.2 How we can help you to get your VAT Returns right the first time

Errors on your VAT Return can prove costly to you and us. If you do not correct errors, you could be liable to a penalty and interest.

2. Errors found in records

2.1 If you find errors in your VAT records

If you find errors in your VAT records, you鈥檒l need to correct them.聽Read section 2.2聽for an explanation on how to correct errors.

If you鈥檝e made an error on a VAT Return you鈥檝e already sent to us, read section 4 to find out how to correct the error.

2.2 If you record or work out your VAT incorrectly

If you find an error in your business records before submitting your VAT Return, you can correct this by amending your records.

Keep a clear note to show the reason for the error and include the correct figure in your VAT account for the same period. The correct figure will then work its way through to your VAT Return.

If you鈥檝e already submitted your VAT Return, you should follow the correction process in section 4.

3. Errors on invoices

3.1 If the wrong amount of VAT was shown on an invoice

This section does not apply if there鈥檚 been a change in the consideration for the supply. For example, if the price has changed and consequently the amount of VAT has also changed. You can find more information in section 18 of VAT Notice 700.

If the wrong amount of VAT was shown on an invoice, this section explains how you can correct it.

For example, if you鈥檝e:

• made a mistake in working out the tax value or the VAT element of the supply
• charged VAT on a supply, but no VAT was due

3.2 Invoices you鈥檝e issued

If the amount of VAT on a VAT invoice you have issued is:

• higher than the amount properly due, then you must account for the higher amount in your records, unless you correct the error with your customer by issuing a credit note
• lower than the amount properly due, then you must account for the correct amount of VAT due whether or not you correct the error with your customer (for example, by issuing a supplementary invoice for the amount undercharged)

You can find more information on credit notes in sections 18 and 19 of VAT Notice 700.

3.3 Invoices you鈥檝e received

If the amount of VAT shown on an invoice you received is:

• too high, then you must go back to your supplier for a replacement invoice reducing the amount of VAT charged
• too low, then you must go back to your supplier for a replacement invoice increasing the amount of VAT charged

If the amount of VAT shown on an invoice you received is incorrect and your VAT return is due you must:

• submit the return accounting for the amount of VAT shown on the invoice
• not adjust the VAT

You can adjust your next VAT return if both the following apply:

• you鈥檝e received relevant documentation, like a credit note or replacement invoice
• this is within the error correction limits described in section 4

4. Correcting VAT errors on a return already submitted

4.1 Penalties for errors

An error is careless if you fail to take the care and attention that could be expected from a reasonable person in the circumstances.

If you discover an error after making a return that was neither careless or deliberate when you sent it to HMRC, you must take steps to correct it. If you do not, we鈥檒l treat the error as careless.

If you can correct an error that you made despite taking reasonable care using method 1 (read section 4.3), you will not need to make a disclosure to HMRC.

If you correct a careless error using method 1, you must tell us about it, regardless of its size or value, to receive a lower penalty.聽The penalty will be lower if you tell us about an error before you have reason to believe that we鈥檝e found out about it.

If you鈥檝e adjusted an error under method 1, but you鈥檙e not sure whether HMRC would consider it careless, you can still either:

• send us an error correction notification
• write to us to make a disclosure

You must notify HMRC about any deliberate errors, in writing, or using an error correction notification under method 2 (read section 4.4). You should provide a description of the error, explaining how and why it happened. You must also include the full amount of the inaccuracy. You can continue on a separate sheet if necessary.

If you send a letter, it should contain the same information you鈥檇 need to include on an error correction notification. You must also tell us that you鈥檝e made the adjustment on your return.聽

Late payment interest will apply if an error means that you did not pay all the VAT payable by the due date for the VAT period. Learn more about VAT penalties and interest.

4.2 Methods for correcting errors

There are 2 methods for correcting errors.

Method 1 is for either:

• errors of a net value that do not exceed 拢10,000
• errors of a net value between 拢10,000 and 拢50,000 that do not exceed the limit described in section 4.3

Method 2 is for either:

• errors of a net value between 拢10,000 and 拢50,000 that exceed the limit in section 4.3
• net errors greater than 拢50,000

You can also choose to use method 2 to report errors of any size.

4.3 Method 1

You can use this method to adjust your VAT account, if you鈥檝e accounted for too much or too little tax and include the value of that adjustment on your current VAT Return, as long as the:

• net value of errors found on previous returns does not exceed 拢10,000
• net value of errors found on previous returns is between 拢10,000 and 拢50,000 but does not exceed 1% of the box 6 (net outputs) VAT Return declaration due for the return period in which you discover the errors

Work out the net value of VAT errors on previous returns, by calculating the:

• total amount due to us, if any
• total amount due to you, if any

If the difference between the 2 figures is greater than 拢10,000 and exceeds 1% of the box 6 (net outputs) VAT Return declaration due for the current return period during which you discovered the error, you must use method 2.

You must always use method 2 if the net errors exceed 拢50,000 or if you made the errors on previous returns deliberately.

Correcting errors using method 1 is not a disclosure for the purposes of the penalty rules described in section 4.1. If you consider that the error corrected using method 1 was a result of careless conduct you will not be able to gain the maximum reduction of the penalty unless you also tell us separately in writing, either by letter or by completion of an error correction notification, about both:

• the error
• your grounds for seeking a reduction to the penalty

This will be an unprompted or prompted disclosure depending on the circumstances.

4.4 Method 2

You must use this method and notify HMRC separately of the error if the:

• net value of errors found on previous returns is between 拢10,000 and 拢50,000 and exceeds 1% of the box 6 (net outputs) VAT Return declaration due for the current return period during which you discovered the error
• net value of errors found on previous returns is greater than 拢50,000
• you made the errors on previous returns deliberately

You can also use this method for errors of any size which are below the limits in section 4.3, instead of a method 1 error correction.

4.5 How to tell HMRC about an error

You can . You鈥檒l need to include the following information:

• how each error arose
• the VAT accounting period in which it occurred
• if it was an input tax or output tax error
• the VAT underdeclared or overdeclared in each VAT period
• how you worked out the VAT underdeclared or overdeclared
• whether any of the errors resulted in you paying us an amount that was not due
• the total amount to be adjusted

If you鈥檙e making a refund claim, we can only accept it if you provide all this information.

4.6 If you cannot use the online service

Notifications in writing must include your VAT registration number. Send them to the VAT Error Correction Team by post at:

You can also contact us by:

• telephone: 0300 200 3700
• 别尘补颈濒:听inbox.btcnevaterrorcorrection@hmrc.gov.uk

4.7 The time limit for correcting errors

The time limit for error corrections is 4 years from the:

• end of the prescribed accounting period in which the error occurred for under-declared and over-declared output tax and over-claimed input tax
• due date of the return for the prescribed accounting period in which the error occurred for under claimed input tax

There are 2 exceptions:

• time of supply (tax point errors) where you鈥檝e declared an amount of VAT on the return that immediately precedes or follows the return for which the amount was due, provided the later return is within the 4-year time limit
• the 4-year time limit does not apply to deliberate errors

4.8 When to correct errors

As soon as you find an error, record it in your VAT records for correction.

You may find it useful to keep a separate record in your current VAT account that you can update if you discover errors. You should:

• show the date you discover the error
• show the period in which the error occurred
• identify any related documentation
• identify whether the error was output or input tax related

The record will help you decide whether method 1 or method 2 is the appropriate method to use when correcting errors. You should normally wait until the end of the current accounting period before making this decision. However, if an individual error is so large that the 1% box 6 test or 拢50,000 limit referred to in聽section 4.4聽will be breached, you must immediately make an error correction notification to HMRC, using method 2.

4.9 If you do not correct VAT errors and HMRC finds them

If we find underdeclared VAT on your returns, we鈥檒l assess for the tax due and may charge you interest. To avoid a penalty, you must disclose the full details of any errors before we begin to make enquiries into your VAT affairs.

Enquiries normally begin when we make an appointment to inspect your records. We鈥檒l accept disclosures for penalty purposes after this point, unless we have reason to believe that you already knew about the errors, and only disclosed them because of our enquiries.

You should make an error correction by following the procedures in聽sections 4.3聽and聽4.4.

You can find further information:

• in VAT Notice 700
• in Code of Practice 9: where HMRC suspects fraud (COP9).

Read section 4.1 for information about penalties for errors in a VAT Return.

4.10 Correcting errors that have little effect on the net VAT that you declared

There may be times when large output and input tax errors have a small or no effect on the net VAT due on returns. If the net value of errors you鈥檝e found on previous VAT Returns is within the limit shown in section 4.2, you can choose either method 1 or 2 (described in paragraphs 4.3 and 4.4) to correct the errors. For us to consider any reduction to a penalty, you must tell us if you鈥檝e made a careless or deliberate error in individual VAT Return declarations, no matter the size or value.

4.11 Adjustments that are not errors

Adjustments you need to make as part of the normal operation of VAT accounting are not errors, and are covered by other VAT accounting provisions. This is as long as:

• they鈥檙e accurate
• you make them at the right time

These accounting adjustments include:

• retail scheme annual adjustments, or other adjustments required when a person stops using a particular retail scheme
• adjustments under the Capital Goods Scheme
• an approved estimation procedure
• partial exemption adjustments
• partial exemption clawback and payback adjustments
• exports and supplies of goods within the European Commission
• issuing or receiving credit and debit notes
• claims for bad debt relief
• pre-registration and post deregistration expenses
• adjustments for valid prompt payment discounts

If the original accounting adjustment was incorrect, or made at the wrong time, you鈥檒l need to make error corrections in the normal way.

5. How to claim a refund

5.1 Accounting for output tax that was not due

If you鈥檝e accounted for output tax to HMRC聽that was not due and this was within the last 4 years, depending on the amount (read section 4.2) you can either:

• adjust your return for the period in which you discover the over declaration
• claim a refund by making an error correction notification

You should correct all other known errors at the same time.

Read section 4 for information about both methods and how the 4-year time limit works. We will not pay a claim which would result in your unjust enrichment. This is where you鈥檝e:

• passed the mistaken VAT charge on to your customer who bore the burden of the mistaken charge but are unable, or do not intend, to pass on to them any repayment resulting from the claim
• not suffered any loss or damage by charging a higher price than you needed to

Read further information about unjust enrichment and the arrangements for reimbursing customers in section 9.

5.2 If you鈥檝e been charged output tax incorrectly

If you think you鈥檝e been wrongly charged an amount as VAT by your supplier, this is a commercial matter. You should seek a refund from your supplier. If you overpaid your supplier and your supplier accounted to HMRC for a corresponding amount, they can make a refund claim to HMRC in order to reimburse you. Claims to HMRC by suppliers for amounts overpaid as VAT are limited to a 4-year period. Read section 4.7 for more information on the time limit for correcting errors.

6. Not claiming enough input tax on your previous returns

6.1 Claiming input tax

You can claim input tax after you have both:

• incurred the input tax
• received the associated聽VAT听颈苍惫辞颈肠别

If you could not claim input tax in any tax period because you did not hold the VAT invoice at the time, you can claim it in a later period on your VAT return. This must be within the 4-year time limit described in section 4.7.

If you had the necessary evidence in the tax period but did not claim, then that return is in error.

7. What happens after you make an error correction notification

7.1 When we may contact you

We may need to contact you to clarify the details of your notification before we process it. In some cases it may be necessary to visit you to verify it. We鈥檒l agree a date and time for the visit with you.

7.2 How we鈥檒l notify you

Once we鈥檝e processed your error correction, we鈥檒l send you a notice confirming the amount and any interest calculated on it. We鈥檒l also send a statement showing the current balance payable to us (including any interest), or repayable to you.

If your correction generated a repayment that is subject to the unjust enrichment provisions detailed in section 9, we鈥檒l not send you these documents, but will write to you to tell you.

If you do not hear from us within 40 working days, contact the VAT Error Correction Team using the contact details in section 4.6 to make sure they鈥檝e received your error correction notification.

7.3 Payments or repayments of amounts

If we鈥檝e notified you in line with聽section 7.2聽and the statement shows a current balance payable to us, it will include details of .

7.4 How we鈥檒l pay net amounts due to you

If we鈥檝e notified you in line with聽section 7.2聽and the statement shows a current balance payable to you, it will include details of how we鈥檒l make the payment.

8. If you disagree with a decision or ruling

8.1 How to make a claim if you disagree with our decision

Once we鈥檝e given you a decision or ruling concerning your VAT liabilities, we鈥檒l normally reject any claim from you which challenges our decision or ruling.

If your claim is formally rejected you can apply for a review of our decision. You have 30 days to apply.

If you do not want a review, or if you do not agree with the result of the review, you can appeal to the First-tier Tribunal to decide the matter.

If you鈥檝e made a valid claim and appeal, and our decision is overturned, you鈥檒l be entitled to a refund.

If you do not appeal, any future claim will be:

• a new claim
• subject to the time limits in section 4.7

8.2 Further information on reviews and appeals

Find out how to disagree with a tax decision or penalty.

9. Unjust enrichment and the reimbursement scheme

9.1 What unjust enrichment is

For tax purposes, unjust enrichment is when someone benefits from a tax refund, but their customer bore the cost for the amount of tax wrongly charged.

We may refuse a claim for over-declared output tax if we find that you鈥檝e passed the economic burden on to your customer.

We will not refuse a claim on the grounds of unjust enrichment, if you both:

• agree to reimburse your customer
• can meet the conditions of HMRC鈥檚 reimbursement scheme

For this purpose, a customer includes everyone you鈥檝e made sales to, whether they鈥檙e registered for VAT or not.

9.2 HMRC鈥檚 reimbursement scheme

To meet the conditions of the reimbursement scheme, you must:

• sign an undertaking in the format set out in聽section 10聽of this notice 鈥� you cannot amend this once you鈥檝e signed it
• refund all of your customers within 90 days
• repay any residual amounts not returned to your customers after 90 days to HMRC within 14 days (we will not send reminders) 鈥� if you fail to do this we鈥檒l assess for the residue
• pass any interest paid with the refunds to your customers 鈥� this is subject to the same terms and conditions as the refund

You cannot use the reimbursement scheme if your customer is VAT registered and recovered the overcharged VAT as input tax.

You must also keep the following records, the:

• names and addresses of the customers you intend to reimburse
• total amount of money paid to each of your customers
• amount of interest, if applicable, paid to each of your customers
• date you refunded the money

You must not take out of the refund any costs you incur in administering the scheme. If you do, we鈥檒l normally assess you.

You can still use the scheme even if you鈥檙e no longer registered for VAT. You鈥檒l be subject to the same terms and conditions as VAT-registered businesses.

9.3 Repaying interest to you

If you鈥檙e due a repayment, you may also receive interest. Read more about repayment interest on VAT credits or overpayments.

If we pay interest, this will be subject to the same terms and conditions as money refunded under the scheme. You must pass this on to your customers in full.

You must pay back any interest that you鈥檝e been unable to pass on to your customers within the specified time limit of 14 days.

9.4 If you do not wish to use the reimbursement scheme

If you agree that you would be unjustly enriched but do not want to, or cannot refund your customers (for example, if you cannot identify them), then you cannot get a refund from us.

The existence of the scheme does not affect your right to claim that you would not be unjustly enriched, or appeal to the tribunal if we reject your claim.

If the tribunal finds in our favour you can still use the scheme.

10. Undertaking for the reimbursement scheme

In relation to a claim for 拢(insert amount) made on (insert date) relating to prescribed accounting period(s) (insert accounting period(s)) made under section 80 VATA 1994. In accordance with the terms of section 80A VATA 1994 and regulations 43A to 43G of the Value Added Tax Act Regulations 1995, Part VA Reimbursement Arrangements (Statutory Instrument 1995/2518), I agree to comply with the following reimbursement arrangements.

鈥業, the undersigned, can identify the names and addresses of consumers whom I intend to reimburse. I will reimburse those persons, in cash or by cheque, all of the amount credited by HMRC under section 80(1) or 80(1A) of the VAT Act 1994, together with any associated interest, without any deduction, for whatever purpose, within 90 days of receiving the credit and I understand that I cannot use the credit for any other purpose. Furthermore, where some or all of the credited amount to be reimbursed has been paid or repaid to me and I have not reimbursed some or all of it to consumers, I will, without reminder, notify HMRC and return the balance together with any associated interest to HMRC within 14 days of the 90 days expiring. Where the credited amount has not been paid or repaid to me, and I have not reimbursed some or all of it to consumers, I will notify HMRC of that amount of credit and associated interest I have not reimbursed to consumers within 14 days of the 90 days expiring. I will keep the necessary records as set out in the Regulations and I will comply with any notice given to me by HMRC about producing the records I am required to keep.鈥�

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