Readers’ forum: Self-billing VAT error: how is it corrected?

One of my clients trades as a property developer and issues self-billed invoices to its building contractors. We have just discovered an accounting error on a contract that involves the 5% rate of VAT the conversion of an office block owned by the client into apartments. We issued self-billed invoices to one builder and incorrectly coded all of them as zero-rated VAT.

The builder thought he had to issue a VAT invoice as well so has been issuing these invoices and adding 5% VAT. Our purchase ledger clerk ignored these invoices because the self-billed document takes priority. The error has now come to light and the total VAT owed to the subcontractor is £12 500.

My view is that the client can pay £12 500 to the subcontractor on the next payment run and issue a self-billed VAT only invoice for this amount claiming input tax on...