Why do you need to know the difference between VAT Error and Adjustment?

making a mistake in your VAT Return


The word “adjustment” means alteration in the English Language whilst “error” means a mistake. The difference between the two is important because when it comes to your VAT Returns how you deal with a VAT error is different to how you can deal with a VAT Adjustment.


What qualifies as a VAT Adjustment?


An adjustment for VAT is not an omission or an error.  It is simply an amendment that you could make which falls within the VAT legislation.

Examples of the most common adjustments we make regularly in VAT Returns are for:

  • Annual adjustments when you use a partial exemption rule
  • Bad debt relief claim
  • Retail scheme adjustments


This is not an exhaustive list, but these are three most common ones used by many businesses in our experience.  All three are good examples of when HMRC allows you to change future VAT Returns without any forewarning or notification. But there are rules to follow.  We’d like to demonstrate this by way of an example:

  • Let’s say you raised a sales invoice for £10,000 plus VAT of £2,000 on 30th January 2023 on a 60 day term.
  • You paid the VAT over of £2,000 in your VAT Return for quarter ending March 2023 because you are not using a cash accounting scheme.
  • But your customer has only paid you £5,000 plus VAT of £1,000 in April 2023.
  • Having discussions with the customer you realise you are not going to get paid the remainder of the £6,000 which includes VAT of £1,000.
  • Now surely you want the £1,000 back from HMRC that you have already paid in the March 2023 VAT Return, and you think “bad debt relief”.
  • Great shout but hang on a minute just be careful, you can only claim back the VAT once the invoice is overdue six months which in this example would be after 30th September 2023.
  • You can write off the bad debt of £5,000 and claim back the £1,000 VAT after 30th September i.e. in the December 2023 VAT Return.  That’s a long time to wait for your cash.


Top Tip: if you can use cash accounting for VAT then you should because it is more favorable for your cash-flow.

Check out our More information on cash accounting for VAT and who is eligible.  Call us if you would like to swap your schemes because during these difficult times it could make a big difference to your cash flow.  But again a bit of planning is involved.


 How do I deal with a VAT Error?


A VAT error is basically when you have made a mistake in the past and under or overpaid your VAT.  When you discover an error, you need to establish the value of the error as this determines how you report the error to HMRC.

You can adjust your next VAT Return if:

  • The net error is less than £10,000 in value or
  • If the net value (the difference between what you owe and what is owed back) is between £10,000 and £50,0000 and is also less than 1% of the total in box 6 of the VAT Return.


Otherwise you need to complete form VAT 652 which you can now also do via your Government Gateway Account.  Other times you’ll need to complete a VAT 652 is if there is correction of deliberate inaccuracies.


What if I need help with my VAT Affairs?

 HMRC’s full guidance on how to deal with VAT adjustments and errors can be here

 VAT is one of the most complex areas of tax and one where the Inspectors are ever willing to impose penalties.  It is early days yet since the introduction of the new VAT penalty system last month but we wait to see if there is going to be an upsurge in VAT investigations.

Careless and deliberate errors in VAT Returns will be subject to penalties and it is always our advice that you should deal with any errors at the first point you notice them.

Need help or don’t know where to start? Just get in touch with your normal manager at Myers Clark or if you are not yet working with us have a look at our what we can do for you by visiting our website