Harvey Dhillon: the client who paid £12,000 too much VAT

A new client once came to me after moving from another accountant. They had paid £18,000 in VAT. The right figure was £6,000. I saved them £12,000 straight away.

The client absolutely loved me. I will admit it did something for me too. It gave me the confidence that I was good at this job.

I tell the story now because VAT returns for the quarter to 30 September are being finished this month, and they are due by 7 November. It is a good moment to look back at the ones already filed.

An overpayment is not a lost cause

Most business owners think of a VAT return as finished once it is filed. It is not, for four years. HMRC's guide to correcting VAT errors, Notice 700/45, lets you put right mistakes in either direction, too much VAT paid or too little, within time limits.

For overpaid output tax, the limit is four years from the end of the VAT period in which the error happened. For input VAT you could have claimed and did not, it is four years from the due date of that period's return. Miss those dates and the money stays with HMRC.

How the correction is made

Small errors go on your next return. If the net value of the errors you have found on earlier returns is £10,000 or less, you can simply adjust your current return. Between £10,000 and £50,000, you can do the same as long as the net figure is no more than 1 per cent of the Box 6 figure, your net sales, on the return for the period in which you found the errors.

Illustration, not a real client: a shop in Ealing finds it overpaid £8,000 of VAT across two returns last year. The net error is under £10,000, so it can take the £8,000 off the VAT due on its current return and record how the error arose. Had the overpayment been £30,000, it could use the current return only if that return showed net sales in Box 6 of at least £3 million, because the error must be no more than 1 per cent of that figure. Otherwise it would tell HMRC separately.

Above that, or above £50,000, or where an error was deliberate, you tell HMRC separately, and gov.uk now has an online route for it. Whichever route applies, HMRC expects to know how each error arose, which period it sat in and how you worked out the figure.

One rule surprises people. If you charged your customers VAT you should not have, and you do not intend to pay the refund back to them, HMRC can refuse the claim. It calls this unjust enrichment. The refund has to go to whoever actually bore the cost.

Where to look

You do not need to suspect your accountant to check your returns. Take the last four years and ask three questions of each one. Did every sale carry the right rate, including the zero-rated ones? Was every VAT invoice you held actually claimed? And if a supplier's invoice arrived late, was it claimed in a later return? HMRC allows that, within the four years.

Our step-by-step guide on how a UK VAT return is completed shows what goes in each of the nine boxes, which makes the questions easier to answer.

What it taught me

An overpaid return can be put right, but only if someone looks, and only inside the time limits.

If you are thinking of changing accountant, our guide to switching accountant sets out what to ask for from the old one. Whoever does your books, ask them for a second look at last year's returns before this quarter's is filed on 7 November.

Four years is longer than most people think. It is not forever.

About the author

Harvey Dhillon is Founder and CEO of Zmartly, a UK accountancy firm for small businesses. He grew up in West London and began his career in investment banking finance at Barclays, before going full-time on Zmartly in 2020. He is a Chartered Management Accountant (ACMA, CGMA).