You spot it three weeks after filing. A sales invoice keyed in twice. VAT reclaimed on a van that turned out to be a company car. The return has gone, the money has moved, and now you are wondering whether HMRC is about to come knocking.
Here is the good news. Most VAT errors are routine, and the process for fixing them changed recently in a way that makes small corrections simpler. The bad news is that the old method people still search for no longer exists.
The problem most SMEs face
Form VAT652 was the paper form businesses used for years to tell HMRC about a VAT mistake. HMRC withdrew it on 5 September 2025. If you go looking for it today, you will not find it, and that catches people out. Search engines still point people to old guides that tell you to download the form, which sends you down a dead end.
The deeper issue is that owners treat every error the same. A £40 keying slip and a £12,000 underdeclaration are not handled the same way. Get the route wrong and a simple fix can turn into a penalty. HMRC can charge up to 30% for a careless error and up to 70% for a deliberate one.
What good looks like
A well-run business finds most errors at reconciliation, the monthly check that every transaction in the bank matches the bookkeeping. Errors get caught within weeks, not at year end. VAT is one of the easiest taxes to get wrong, because it runs every quarter and touches every sale and every purchase you make.
The owner knows the two numbers that decide everything. You can adjust the error on your next VAT return if the net value is below £10,000. You can also adjust it if it falls between £10,000 and £50,000 and is less than 1% of your total sales (box 6) for that period. Anything larger, you report separately. Net value means the tax you owe HMRC minus the tax HMRC owes you across all the errors in the period.
A practical step-by-step
- Work out the net value of the error. Add up what you underpaid, subtract what you overpaid, for the whole period in question.
- Check the date. You have four years from the end of the relevant VAT period to correct most errors.
- If it is under the threshold and was a genuine mistake, adjust it on your next return. Keep a dated note of what happened, the figures, and how you worked them out.
- If it is over the threshold, use HMRC’s online VAT error correction service through your Government Gateway account. This replaced VAT652.
- If you are unsure whether HMRC will see the error as careless, tell them anyway. Unprompted disclosure of a careless error can cut the penalty to zero.
What to watch out for
Small does not always mean silent. If an error was careless or deliberate, HMRC expects you to notify it separately, whatever the size. Adjusting the return on its own is not enough to protect you.
Interest is no longer trivial. From 6 April 2025, HMRC charges late payment interest at the Bank of England base rate plus 4%. On an underdeclaration that sat for a year, that adds up.
The 1% test trips people. For errors in the £10,000 to £50,000 band, you have to check the value against box 6 total sales. Miss that and you may adjust something that should have been reported.
Most VAT errors trace back to weak reconciliation and numbers nobody reviews until it is too late. FinanceMOT reads your accounts and turns them into a financial health score out of 100 across four pillars, Liquidity, Profitability, Efficiency and Solvency, so the warning signs surface in plain English. The executive summary tells you which numbers need attention this month, not next year. Your accountant shows you the numbers. FinanceMOT tells you what to do about them.
Run your free financial MOT at financemot.com
