The current procedure adopted by NHS bodies and accepted by HMRC for correcting errors is to enter any overclaim or payment in Box 1 of the VAT return and any underclaim or repayment in Box 4.
This is incorrect, since Box 1 should only be used to account for additional output tax due. It should not be used for example to repay overclaimed COS VAT.
In future, VAT adjustments should be made in the following way:
- Underpaid output tax is declared in Box 1
- Underclaimed business input tax is declared in Box 4 and section 1 of the Form VAT 21
- Underclaimed COS VAT is added to the appropriate COS heading in section 2 of the Form VAT 21
- Overclaimed COS VAT is deducted from the appropriate COS heading in section 2 of the Form VAT 21
If a partial exemption repayment is due (of previously claimed COS VAT), it may not be possible to identify the individual COS headings to be adjusted. In these cases, the total amount due for repayment can be shown as a negative amount on Form VAT 21 under COS heading 100.