VAT accounting errors
Businesses are currently required to notify HMRC of net errors in their VAT accounting not exceeding £2,000. This disclosure system is a useful mechanism as VAT returns are submitted regularly throughout the year, and it may only become apparent that an error has been made after a particular return has been submitted. It typically enables any repayments due from HMRC to be made earlier than they would be if they were claimed on subsequent VAT returns.
By a new statutory instrument published this week, HMRC have opened up the cap to a much higher maximum of £50,000. This follows consultation with businesses whose main adverse comment on the disclosure regime was the low cap – large businesses in particular found the £2,000 limit disproportionate in relation to the size and volume of transactions they made.
The instrument also makes the same provision for insurance premium tax, landfill tax, climate change levy and aggregates levy. The forms that are used for some of these returns have now changed.
If the business’ VAT turnover is less than £5m, the limit can only increase to 1% of the turnover – i.e. for a business whose VAT-able turnover is £3.5m, the cap is £35,000. Above turnovers of £5m, the £50,000 cap continues to apply. The new limits apply to errors discovered during VAT prescribed accounting periods beginning on 1 July 2008 or later. Note that the penalty regime for errors in taxpayers’ documents is unaffected.