Q&A: Issuing invoices to correct VAT errors

Q. I am the director of my own company incorporated 14 months ago. The business has expanded such that I have taken on a bookkeeper. Whilst preparing the information required to give to my accountant at the year-end, she has found a set of sales invoices that I issued soon after registration but inadvertently did not include VAT on. Can I now issue additional invoices to correct the VAT error?

A: This situation is not uncommon and HMRC has a procedure for dealing with such circumstances. The invoices you give to your customers must state if VAT is included or excluded. Legally this means that if your invoice does not show VAT, you cannot later demand payment from the customer. Therefore, if you fail to charge or charge the wrong amount of VAT, you are liable to make up the shortfall. Any such shortfall must be declared on the return for the period in which the error is discovered. If the total amount for all errors is less than £10,000, or less than £50,000, and 1% of the outputs figure (Box 6 on the VAT return), the correction is made by including an adjustment on the next VAT return. If the amount is more, notification is via completion of form VAT652.

Whether you can recover any of this underpayment from your customer will probably depend upon the goodwill of that customer and their own VAT registration status. If your customer is VAT registered, they may be willing to make the payment as they may not be worse off in doing so. A non-VAT registered customer will have an extra bill to pay although they may be able to deduct that payment from their profit for tax purposes if they are in business.

For further information on telling HMRC about errors on your VAT return can be found here. 

https://www.gov.uk/government/publications/vat-notification-of-errors-in-vat-returns-vat-652

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About the Author

Paul Newbold

Partner

After qualifying with KPMG where he gained significant audit experience, Paul joined Torgersens in 1991 and became the firm’s audit partner in 2000. Paul employs his broad range of financial skills to provide commercial and accounting advice to a range of owner-managed businesses in the independent retail, education and professional services sectors. He also has extensive experience dealing with charities, Registered Social Landlords and not-for-profit organisations and co-operatives.   Outside of work, Paul likes to visit Eastern France and South-West German and read novels by David Morrell, Michael Blake and Harper Lee. He also likes watching films, his favourite is The Shawshank Redemption.

To get in touch please e-mail paul.newbold@torgersens.com.