Getting it right, after it has gone wrong!
Calculating and paying the “right tax at the right time” is the basis of good VAT compliance, however this is often easier said than done. Complexities within accounting systems, different VAT liabilities and the sheer number of transactions often result in errors being made. The first and most important step is to have controls in place which will hopefully pick up these errors. Starting with an easy to follow and a simple as possible VAT account (i.e. calculation sheet), which is quite often maintained on a spreadsheet, through to reconciliation checks and reviews by a second pair of eyes. With the correct controls in place hopefully errors will be picked up quickly. For more complex businesses, assignment of responsibilities for individuals who are involved in the production of information for the VAT return is essential.
On the discovery of an error, the next VAT return can be amended to declare the error, that is unless the error is over £10,000, in which case HMRC have to be notified by way of a voluntary disclosure. By doing so HMRC are unlikely to impose penalties due to the high level of cooperation and compliance shown. One of the levels HMRC rate a business is by compliance. By making adjustments for errors either on the return or by way of a voluntary disclosure is a good indicator that firstly, there are adequate controls in place to discover errors and secondly, the business is being honest by declaring the error. If it can also be demonstrated that the underlying reason behind the error has been resolved then all the better. It is a common misconception that by making a disclosure the business will get a “black mark” because it made a mistake, when actually everybody makes mistakes; it is what you do when you find the mistake that matters.
A further important point to consider is that HMRC are more likely to accept a time to pay arrangement in relation to a disclosure than if an error was discovered on a VAT visit. In summary by making the disclosure a business is:
– demonstrating that controls are in place to uncover errors.
– demonstrating its honesty.
– significantly reducing the possibility of a penalty (however interest will still be chargeable).
– increasing the likelihood of agreeing a time to pay arrangement.
Moore and Smalley can assist in reviewing VAT systems and can recommend in the implementation of controls. Also we can assist in the calculation and submission of voluntary disclosures. If you would like further information then please contact the VAT specialist team on 01772 821021