What is considered unprompted error in the context of VAT returns?

In the context of VAT returns, an unprompted error is characterized by errors that a business has identified and voluntarily disclosed to HM Revenue and Customs (HMRC). This type of disclosure occurs without any external encouragement or prompting, such as being alerted to the issue by an audit or investigation. The essence of recognizing an error as unprompted is that the taxpayer is taking the proactive step to notify HMRC about discrepancies in their VAT returns, which reflects a commitment to compliance and self-reporting.

Voluntary disclosure can lead to benefits such as mitigating penalties since the taxpayer has taken the initiative to correct their errors, thereby demonstrating responsible behavior. This distinction is crucial as it forms part of the framework for how errors are treated under VAT legislation, impacting potential penalties and the taxpayer's credibility with HMRC.

The other options refer to scenarios where errors may be identified, but these do not align with the definition of an unprompted error. For example, errors discovered by HMRC during audits are considered prompted, as is any reporting by third parties. Errors that have not been flagged for correction do not necessarily indicate proactive disclosure, as this implies a lack of action to correct.