VAT adjustments and corrections

When to make a VAT correction

VAT errors happen. Common reasons include:

• A transaction was posted with the wrong VAT rate.
• An invoice was missed in the period.
• A credit note was overlooked.
• A bad debt relief claim was missed.
• The VAT on a purchase was reclaimed incorrectly (e.g., entertaining expenses).

Once a return is filed, you cannot amend it directly in AccBooks — corrections go on the next return.

The error disclosure threshold

HMRC has two correction routes, depending on the size of the error:

Error size	Route
Net VAT error ≤ £10,000 OR ≤ 1% of Box 6 turnover	Adjust on next return (no need to notify HMRC separately)
Net VAT error > £10,000 AND > 1% of Box 6 turnover	Notify HMRC directly using form VAT652

For deliberate errors, you must always notify HMRC regardless of size.

Adjusting on the next return

1. Go to VAT → Returns and open the next period’s draft return.
2. Click Add adjustment on the relevant box.
3. Enter the correction amount (positive to increase, negative to decrease).
4. Select the reason from the dropdown (e.g., Error on previous return).
5. Enter a description for audit purposes.
6. The adjustment is included in the filed return and visible in the period breakdown.

AccBooks keeps a log of all adjustments and their reasons, which is useful if HMRC ever asks for an explanation.

Notifying HMRC of large errors (VAT652)

For errors above the disclosure threshold:

1. Download form VAT652 from gov.uk.
2. Complete the form with details of the error, the correct figures, and the amount of underpaid or overpaid VAT.
3. Submit to HMRC by post.

Voluntary disclosure before HMRC discovers the error typically results in no penalty, or a reduced one. Late payment interest may still apply.

Bad debt relief

If a customer hasn’t paid an invoice more than 6 months after the supply date, and the debt has been written off, you can reclaim the VAT charged as bad debt relief.

In AccBooks:

1. Go to the unpaid invoice.
2. Click Write off as bad debt.
3. AccBooks creates a credit note and adds the VAT to your next return as bad debt relief (Box 4 adjustment).

Keep records of the write-off decision in case HMRC asks for evidence.

Capital goods scheme adjustments

If you’ve purchased capital goods worth over £50,000 (£250,000 for land and buildings) and your taxable use changes, you may need to make annual adjustments under the Capital Goods Scheme.

AccBooks tracks capital goods scheme items under Fixed assets → Capital goods scheme. Annual adjustments are calculated automatically when you run your year-end close.

Partial exemption annual adjustment

If you’re partially exempt, you must make an annual adjustment in the first return after your partial exemption year ends. AccBooks calculates this automatically — go to VAT → Partial exemption → Annual adjustment and follow the guided flow.