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 30/9/2023 (net of VAT) |
55,000 |
8,500 |
Debtors at 30/9/2024 (net of VAT) |
43,000 |
6,750 |
20% VATable turnover Y/E 30/9/2024 |
134,000 |
N/A |
0% VATable turnover Y/E 30/9/2024 |
34,000 |
N/A |
Total turnover Y/E 30/9/2024 |
168,000 |
N/A |
Figures from its VAT returns on a cash basis:
Quarter |
Sales (Box 6) £ |
Output VAT (Box 1) £ |
31/12/2023 |
35,000 |
6,750 |
31/3/2024 |
45,000 |
8,750 |
30/6/2024 |
25,000 |
5,000 |
30/9/2024 |
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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