NEWS - VAT - 31.03.2008

Correction of errors

Recap. At present, you can only correct errors on past returns by adjusting a current return if the error is less than £2,000. Errors in excess of this amount have to be separately notified to the VATman.

Budget 2008. We suggested in a previous article that a rise to £5,000 might be on the cards (seeThe next step). The limit has in fact been increased (for periods commencing on or after July 1 2008) to the greater of: (1) £10,000; or (2) 1% of turnover, subject to an upper limit of £50,000 (where turnover is the figure in Box 6 of the return). Good news on the administration front but there is a potential downside.

The catch. The VATman hasn’t said if adjusting an error on a VAT return is “taking reasonable steps to inform (him)”. If not, it means a possible30% penalty for being “careless”, even if the error is less than £10,000! This is absolutely crazy so hopefully the VATman will see the problem and exclude errors under £10,000 from an automatic 30% penalty. However, until this happens…

Tip. Until June 30 2008, adjust your VAT return if the error is below £2,000. After July 1 2008, if the error is below £10,000, adjust your return. Make a diary note to monitor the new limits.

The next step

For a previous article on correcting VAT errors, visit http://tax.indicator.co.uk (TX 08.12.08)