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HMRC internal manual

VAT Valuation Manual

Monetary consideration: mistakes in charging VAT

Traders may make their charges subject to VAT either on a VAT-inclusive or VAT-exclusive basis. The appropriate basis for charging VAT will depend upon the precise terms of the contract between the trader and the customer. The one exception to this general principle is where contracts are adjusted following rate changes (See VATTOS: Time of supply).

Where the price was intended to be VAT-exclusive, but the trader makes a mistake in respect of the amount charged, we are only concerned with the actual amount paid when establishing the proper amount of VAT due. Normally, we use the VAT-inclusive consideration - even if the trader had intended his charges to be on a VAT-exclusive basis.

The exception to this general rule is if the trader has overcharged VAT and that charge was separately identified. In such a case, we would treat the entire purported VAT charge as the amount of VAT due by virtue of the VAT Act 1994, Schedule 11, paragraph 5(2).

“Where an invoice shows a supply of goods or services as taking place with VAT chargeable on it, there shall be recoverable from the person who issued the invoice an amount equal to that which is shown on the invoice as VAT or, if VAT is not separately shown, to so much of the total amount shown as payable as is to be taken as representing VAT on the supply.”

Please see VATVAL02500 for examples of how to calculate the VAT due when there has been a mistake in the amount charged by the trader.