penalty trap

VAT – Avoiding the ‘Penalty trap’

Making a mistake in your VAT calculations can prove costly, particularly in view of the recent changes to the penalty regime. Of course, avoiding errors altogether is ideal, but what action should you take if you do make a mistake? If you make an error in your VAT calculations you may include the under or overpayment in your next VAT return, providing the net errors for the period are within the specified limits. New rules For VAT periods ending before 30 June 2008 this error reporting limit was £2,000. However, for VAT periods beginning on and after 1 July 2008 this limit is increased to the greater of: £10,000 or 1% of the turnover for the period in which the error is found (box 6 on the VAT return), subject to a maximum error of £50,000. Reporting the mistake Where the... »