How to correct a VAT error — How-to

2 min read

£10,000Adjustment threshold*

VAT652Formal notification

DiscloseCut the penalty

Step 1: Work out the net error

Add up the tax you under-declared and subtract anything you over-declared across the affected periods to get a single net figure. Whether you can simply adjust it or must formally disclose depends on that net amount and your turnover.

Step 2: Small errors — adjust on the next return

If the net error is below the reporting threshold — broadly £10,000, or up to 1% of your Box 6 turnover figure up to a £50,000 cap — you can correct it by adjusting Box 1 or Box 4 on your next VAT return. Keep a clear note of what you adjusted and why.

Step 3: Larger errors — notify HMRC

If the error is above the threshold, or you simply prefer to disclose, notify HMRC separately (form VAT652 or online). Doing this promptly and voluntarily is treated as an "unprompted disclosure", which sharply reduces or removes any penalty compared with HMRC finding it first.

Step 4: Fix the root cause

A one-off slip is forgivable; a systemic error that recurs every quarter is not. Trace how it happened — a mis-coded product, a wrong VAT rate, a duplicated invoice — and fix your process so it cannot repeat.

Step 5: Budget for the settlement

A corrected error can mean an unexpected payment plus interest. If it strains cash, a short facility covers it while you keep trading.

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*Thresholds and rates change — check the current figures with HMRC.

Frequently asked questions

Can I just fix a VAT error on my next return?

If the net error is below the reporting threshold (broadly £10,000, or up to 1% of Box 6 turnover capped at £50,000), yes — adjust Box 1 or Box 4 on your next return and keep a record. Larger errors need separate notification.

Will I get a penalty for a VAT error?

Not necessarily. If you make an honest mistake and disclose it promptly and voluntarily, penalties are usually reduced or removed. Penalties rise sharply for careless or deliberate errors, and for those HMRC discovers first.

How do I notify HMRC of a larger VAT error?

Use form VAT652 or HMRC's online error-correction service. Disclosing before HMRC raises a query counts as an unprompted disclosure and attracts the lowest penalty range.