Do your financial records agree?
News & blog » Ensure your VAT returns equate
August 9, 2016
Inma Fuentes Grant
You must register for VAT with HM Revenue and Customs (HMRC) if your business’ VAT taxable turnover is more than £83,000. You must register when you go over the threshold, or know that you will.
If you are registered for VAT, then you usually submit a VAT Return to HM Revenue and Customs (HMRC) every 3 months. This period of time is known as your ‘accounting period.’ The VAT Return records things for the accounting period like your total sales and purchases, the amount of VAT you owe, or the amount of VAT you can reclaim.
You must submit a VAT Return even if you have no VAT to pay or reclaim in any ‘accounting period’, although this is unlikely unless you are in the period of closing down the business before de-registering.
However, are you aware that HMRC have a number of ways of checking that your VAT returns are accurate and they are often undertaken automatically by the HMRC computer systems. One of these is to check that the sales reported on your quarterly VAT returns equate to the turnover in your annual financial accounts, as declared with companies house or via your self assessment return.
It is therefore important that you undertake this reconciliation of your VAT returns to your accounts figures at least once per year. So does the net sales turnover used for your quarterly VAT returns equal the number quoted in your accounts.
If the HMRC computer picks up a difference, then it is very likely that it will generate either a VAT inspection visit by a HMRC tax inspector or HMRC may even simply issue an assessment notice for the VAT due on any allegedly missing turnover. It will be at your cost and responsibility to evidence that your returns were accurate or you will be required to pay the notice amount.
However, if the VAT returns report higher sales than the accounts, then HMRC will not simply repay any overpaid VAT without a formal claim submission!
Another check is that the amount of VAT due on Sales, as declared in Box 1 of your VAT return is in relation to the Net Sales value quoted in Box 6. So for example, if all your sales are subject to standard rate VAT of 20% and Box 6 quotes £100,000 then of course Box 1 should be £20,000. If not, then be clear you know the reason why and even record a note in your return records.
If you are using bookkeeping software, then a further recommendation is to print the summary report and any detail of the VAT calculations for your records. It is essential that you retain copies of your VAT returns and although HMRC insists that all VAT returns are submitted online, you can only access copies of VAT returns once submitted in the last fifteen months.
If you need to correct VAT errors and make adjustments or claims before HMRC contact you, then please read the guidance notes on the HMRC web site by clicking here