VAEC7410 - Error correction for VAT returns: Time limits: Introduction

A person can correct errors discovered in previously submitted VAT returns for prescribed accounting periods that ended less than four years earlier.

This could differ though for:

  • time of supply (tax point errors), see VAEC7420, and
  • deliberate inaccuracies, see VAEC7700.

The time limits in respect of either careless errors or errors made despite taking reasonable care are

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

There are two methods of error correction. The appropriate methods are explained at VAEC7110. The above time limits apply to both methods.

The length of the accounting period in which the error occurred is not relevant. It does not matter if part of the accounting period containing the error is over 4 years old, providing the appropriate time limit above is not exceeded.

See

  • CH56300 for all VAT assessing time limits
  • VRM2800 on time limits for over-declared output tax
  • VRM8300 on time limits for late claims for input tax.

Prescribed accounting period containing errors that are a net credit
Prescribed accounting period containing errors that are net tax due to HMRC
Error Correction notifications containing multiple periods
Time limits - risk awareness
Date of error correction notification
Voluntary payments for out-of-time periods
20 year time limit for deliberate inaccuracies
Time limits - legislation references 

Prescribed accounting period containing errors that are a net credit

Where an error correction notification includes a prescribed accounting period where the error is a credit due to the registered person (net amount for the period if it included multiple errors), the error correction notification includes the person's claim against HMRC for that period.

  • Claims for over-declared output tax must comply with Section 80 VATA 94, VAT Regulations 1995 SI 1995/2518 Regulation 37 and Notice 700/45.
  • Late claims to input tax must comply with VAT Regulations 1995 SI 1995/2518 Regulation 29 and notice 700/45

Claims must be made within the time limits detailed above.

If an error correction notification includes a claim for a prescribed accounting period that was made in time, the claim for that period will remain in time. This is the case regardless of how long it takes for that claim to be agreed, reduced or refused.

Prescribed accounting period containing errors that are net tax due to HMRC

Where however an error correction notification includes a prescribed accounting period where the error is an amount due to HMRC (net amount for the period if it includes multiple errors), you must make an assessment for that period, subject to the usual assessment time limits, in order to establish the tax due. This means that where, for a prescribed accounting period, the net amount of the errors in that period is tax due to HMRC, you must assess that period within the normal assessment time limits or they will be out of time and be unenforceable.

Error Correction notifications containing multiple periods

The consequence of the above is that where an error correction notification, or other acceptable notification, is received containing multiple periods, officers must consider the relevant time limits for each prescribed accounting period rather than simply look at the total of all errors on the notification.

For any period with error corrections that are a net credit due to the taxpayer, the error correction notification is the person's claim for that period and has to be made in time. For any period where the error corrections are a net debit due to HMRC, the officer will have to ensure that an assessment is made and notified, see VAEC1120, in time for that period. The mainframe notice VAT657 serves to notify agreed claims and assessments for tax due periods.

Time limits - risk awareness

Officers should be aware that their consideration of an error correction notification may reveal not only incorrect amounts contained in the notification but also other errors not included. Where an error correction notification includes a claim for a particular period, the officer's decision could be that there is in fact no net credit in that period to claim and instead, tax is due to HMRC. This would require refusal of the claim and an assessment to be made within time limits for the net tax due.

So, where an error correction notification includes a claim for any period (net of all errors in the period), there would not, on the face value of the errors disclosed, be an assessment to make for that period. Nevertheless, officers need to be vigilant to the possibility that their enquiries may result in refusal of the claim and the need to make an assessment within assessment time limits.

Clearly, for an assessment, the net amount of errors in a period has to be tax due to HMRC so there must be at least one error that is tax due. The tax due error may be one not included in the error correction notification but discovered by the officer, or it may be included in the notification and in a period for which the customer has made a claim for a net credit. Officers need to be particularly alert to the existence of such tax due errors contained in a claim for any period because if the credit elements of the claim are refused or are reduced such that they are less than the tax due, an assessment will be necessary for the resultant net debit.

If an officer agrees a claim for a prescribed accounting period for the full or reduced amount, no assessment will be necessary for that period. However, it is good practice for officers to bear assessment time limits in mind even when considering claims. This is because of the possibility of the claim being refused and an assessment becoming necessary. Officers therefore need to be alert to what they may find. This is particularly so when the claim is net of more than one error where at least one of the errors is tax due to HMRC.

Date of error correction notification

You should normally accept the date on a letter or an error correction notification, or the date of an entry adjusting an err in the VAT account, unless you have reason to believe that the error correction procedures are being manipulated. For example, where there is evidence that a notification may have been delayed or an adjustment backdated. However, when you need to determine the date in which a person has made a separate notification, or adjusted the VAT account, you should always adopt a common sense approach and, where appropriate, give the person the benefit of any doubt.

Voluntary payments for out-of-time periods

A person may use the error correction procedures to make a voluntary payment for errors that can no longer be assessed. See VAEC8000 for guidance on how to deal with such voluntary payments.

20 year time limit for deliberate inaccuracies

A person can also use the error correction procedures to make disclosures of under-declared or over-claimed VAT resulting from deliberate inaccuracies in previously submitted VAT returns for periods that ended up to 20 years earlier, see VAEC7700. They must make the correction by separate notification, see VAEC7120.

Time limits - legislation references

The more common legislation time limits are contained in:

VATA94/S73(6)

VATA94/S77(1) 

VATA94/S80(4)

SI 1995/2518 Reg 29(1A)

SI 1995/2518 Reg 34(1A)

SI 1995/2518 Reg 35