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Newsletter issue - June 08.
When you make an error in your VAT return, you can include the under or overpayment of VAT in your next VAT return, as long as the net error is not more than £2,000. If the VAT difference is more than £2,000 you should write to the VAT office and confess your mistake. We can help you with this as its essential to get the error pinned down exactly. If the error is a net underpayment of VAT, the VAT office will normally reply with a demand for interest on the late paid VAT.
The good news is for accounting periods beginning after 30 June 2008, that's your next VAT quarter, the error-reporting threshold is being increased dramatically. The new limit is the greater of £10,000, or 1% of your reported turnover for the VAT quarter, subject to a cap of £50,000. So VAT errors within this much higher limit can be included on the VAT return without having to write to the VAT office.
If you have overpaid VAT in the past, perhaps due to a misunderstanding over the correct VAT rate to apply to certain goods (such as tea cakes), you can reclaim that overpaid VAT from HMRC. The VAT office previously insisted that you make all such claims within three years of the end of the period in which you made the mistake. This three year cap was introduced on 1 May 1997 for purchases and on 4 December 1996 for sales, but the House of Lords has ruled this time limit is illegal. Now you have until 31 March 2009 to reclaim overpaid VAT from periods before 4 December 1996 and to reclaim VAT on purchases for periods prior to 1 May 1997. If your business is in this position we can help you to draft the claim.
