V3.419 Accounting errors/adjustments
Error not exceeding £50,000
Regulations1 made under VATA 1994 Sch 11 para 2(10)(b) provide that a taxable person may correct his VAT account2 if, in relation to all understatements or overstatements of input tax or output tax discovered by the taxpayer during a prescribed accounting period, the difference between underdeclarations of liability3 and overdeclarations of liability4 does not exceed £50,000. This is subject to the proviso that if the Box 65 figure of the VAT return is less than £5,000,000, the difference must not exceed 1 per cent of that figure unless the difference is £10,000 or less6. It is also subject to the proviso that the “error” must not be deliberate; if it is deliberate, the procedure described under “Error exceeding £50,000” below must be followed7.
If the amount of any understated input tax exceeds the amount of any overstated input tax, the amount of the excess is entered as a positive amount in the tax allowable portion of the person's VAT account8. If the amount of any overstated input tax exceeds the amount of any understated input tax, the amount of the excess is entered as a negative amount in the tax allowable portion of the person's VAT account9. The relevant entry is made in that part of the VAT account which relates to the prescribed accounting period in which the understatements or overstatements were discovered. The entry must make reference to the return(s) to which it applies and to such documentation as relates to the
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