Everyone makes mistakes from time to time, but when it comes to reporting VAT it really is better to be safe than sorry. Fortunately HM Revenue & Customs is happy to let errors be put right by an adjustment to a later VAT return ... if the error falls within certain parameters. However, the limit for correcting errors yourself, without a specific notification to Customs, has recently increased fivefold.

Here is a summary of the basic rules that now apply.

You can amend your next VAT return to account for past errors if you meet the following conditions:

a) The errors are first found by you during a VAT period commencing on or after 1 July 2008

b) All the errors occurred in returns within the last 3 years

c) The net error, after offsetting under and over statements of VAT, is no more than £10,000 or 1% of your "Box 6" figure (ie the net of VAT turnover for the current quarter).

Errors that are larger than this can be notified to HMRC on Form 652. You will receive a notice of the amount you need to pay, if any, including any interest. If the error is in your favour and you have paid too much VAT, you will receive a refund.

It is better to put mistakes right yourself as HMRC may charge a misdeclaration penalty if it finds the mistake, and that could be as much as 100% of the error. Sadly, you are not allowed to process errors yourself once you are under enquiry or have a VAT visit coming up. But do tell the VAT officer at your earliest opportunity as this can result in the error being viewed more leniently.

Jackie Richmond is VAT Director at Menzies. She can be contacted at jrichmond@menzies.co.uk.