Why should you reconcile your output VAT to your VAT returns? How can you perform such a reconciliation?

This is a freeview 'At a glance' guide to output VAT reconciliations. 

At a glance

Undertaking a reconciliation of a business's output VAT to its VAT returns can provide comfort that: 

  • All sales in the accounting records have been reflected in the VAT returns.
  • VAT has been declared on sales at the correct rates. 

There are two reconciliations that can be undertaken: 

  • VAT/turnover reconciliation. 
  • Output VAT reconciliation. 

It is recommended that these reconciliations are performed at least annually. When preparing the accounts of the business is a good opportunity. 

VAT/turnover reconciliation 

This reconciliation compares turnover recorded in the nominal ledger to sales declared on the VAT returns. 

Example: 

  • Business with a 30 September year-end. 
  • Figures from its trial balance on an accruals basis: 
 

£

VAT element £

Debtors at 30/9/2022 (net of VAT)

55,000

8,500

Debtors at 30/9/2023 (net of VAT)

43,000

6,750

20% VATable turnover Y/E 30/9/2023

134,000

N/A

0% VATable turnover Y/E 30/9/2023

34,000

N/A

Total turnover Y/E 30/9/2023

168,000

N/A


Figures from its VAT returns on a cash basis: 

Quarter

Sales (Box 6) £

Output VAT (Box 1) £

31/12/2022

35,000

6,750

31/3/2023

45,000

8,750

30/6/2023

25,000

5,000

30/9/2023

75,000

8,050

Total

180,000

28,550


The reconciliation: 

 

£

Sales declared on VAT returns

180,000

Add: closing debtors

43,000

Less: opening debtors

(55,000)

Turnover per the trial balance

168,000


The above is a simplistic calculation.

If you are not cash accounting for VAT it should be easier to check the figures as you do not have to consider the effect of cashflow. Where you have different VAT tax points, these will make a difference.

You may find that you have differences in your reconciliation. These may arise from:

  • Sales omitted from the VAT returns. 
  • Duplicated sales invoices.
  • Sales refunds misposted or not adjusted for in your VAT returns.
  • Bad debts written off and later recovered.
  • Cash receipts misposted.
  • Late adjustment claims and adjustments.
  • Banking differences.
  • Credit notes posted as late claims.

If there is a difference it is advisable to:

1) Review any manual journals or adjustments that affect sales or VAT.

2) Check that your accounts all reconcile, e.g. the balance sheet balances, your bank reconciles, your sales ledger balance matches your closing debtors list.

3) Re-check your VAT return and sales figures.

Output VAT reconciliation

This reconciliation compares the expected output VAT due, based on turnover recorded in the nominal ledger, to output VAT declared on the VAT returns. 

The output VAT reconciliation is particularly useful for identifying sales omitted from VAT returns.

Continuing the above example: 

Output VAT expected based on nominal ledger

£134,000 x 20% =

26,800

£34,000 x 0% = 

-

Total

26,800 

 

 

Actual output VAT declared (adjusted from cash basis)

Total per VAT returns

28,550

Add: VAT on closing debtors

6,750

Less: VAT on opening debtors

(8,500)

Total

26,800


As with the VAT/turnover reconciliation, this may identify differences arising for similar reasons to those listed above. 

Differences should be investigated to ensure there is no error on the VAT returns.  


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