Who pays if AI gets my VAT return wrong?

Short answer

You do. The VAT and any penalty fall on the business that sends the return, whoever or whatever prepared the figures. A careless error costs up to 30 percent of the tax on top, and no penalty applies if you took reasonable care. Telling HMRC first can bring a careless penalty down to nil.

What are the penalties?

HMRC's factsheet CC/FS7a (updated 21 July 2026) sets these ranges, as a share of the tax lost:

Behaviour	You told HMRC first	HMRC found it first
Reasonable care taken	No penalty	No penalty
Careless	0% to 30%	15% to 30%
Deliberate	20% to 70%	35% to 70%
Deliberate and concealed	30% to 100%	50% to 100%

A worked example

Say an AI reclaims VAT from invoices of a supplier who is not VAT registered, and nobody checks. Over four quarters, that is £3,000 of VAT wrongly reclaimed. The figures below are the example in HMRC's own factsheet; the story around them is made up.

HMRC finds it first and calls it careless, so the range is 15% to 30%. You help fully and get a 70% reduction:

The range is 15 points wide.
70% of 15 is 10.5 points.
30% less 10.5 points is a rate of 19.5%.
19.5% of £3,000 is a penalty of £585.

You repay the £3,000 as well, so the bill is £3,585, plus any interest. Had you found it first, the same error could carry no penalty at all, as an unprompted careless error can fall to nil. And £3,000 is under the £10,000 limit for correcting an error on your next return, as long as it was not deliberate.

Does using AI count as reasonable care?

Nothing we found says so, either way. HMRC's manual at CH81120 does not mention software or AI. It says care depends on your abilities and circumstances, that it expects sufficient records, and that more complex affairs need more sophisticated systems followed carefully.

It does say that if you are unsure about an entry, you can seek advice, or draw attention to the entry and the uncertainty when you submit. That points to what to keep when AI prepares your figures:

a check of each return before it goes, with the date
the document behind each VAT reclaim
your own list of what the AI got wrong, and what you changed afterwards
advice you took on anything unfamiliar

Handing over the whole return and never reading it is hard to describe as care. That is our reading, not an HMRC statement.

Can I claim it back from the software company?

Read the terms of whatever you use, and do not assume so. Octobooks is a tool, not an adviser, and the same is true of the AI you connect to it. Octobooks shows the entries behind every VAT figure, and you submit the return yourself. To build the habit, run one month and check it. If you sell online, also see VAT for UK online sellers.

This is general information, not advice on your own case.

Sources

Updated 2026-11-04. General information, not tax advice for your own case.