How can I check my VAT return?

Whatever accounting system you use it is important that you have a procedure to check the correctness of your VAT Return – the HMRC penalty regime does distinguish between errors arising despite the taxpayers best efforts to check that the information provided is correct, and errors which are a result of negligence.

We would suggest something like:

1. generate the VAT Report for the required VAT period (usually a three month period)

In Central Accounting or Central ERP:

  • click on ‘Accounts’, ‘Accounts’, ‘New VAT Return’
  • enter start and finish dates for the report
  • and click ‘Generate Report’

Check that the box 1 VAT Return figure divided by the box 6 Sales figure is what you would expect i.e. if all your sales are standard rated then the result of the division should be the current VAT Rate (note 0.2 = 20%).

Check that the box 4 VAT figure divided by box 7 Purchases figure is what you would expect but take care that if you have a figure in box 2 this will have been added to the purchases VAT value.

Check the listing for obvious errors such as VAT values which are clearly more than the appropriate proportion of the (ex-VAT) Value, or where VAT has been claimed on purchases such as insurances or other services which are outwith the scope of VAT and therefore exempt.

You may need to correct errors with adjusting invoices or credit notes, and if so, you will then need to restart the process by generating the VAT Report again.

2. generate the Trial Balance Report for the end date of the VAT period

In Central Accounting or Central ERP:

  • right click on ‘Accounts’, ‘Accounts’, and ‘Open Link in New Tab’ (to open the menu in a new browser tab so that you can keep the VAT Return open in the original tab)
  • go to the new tab and click ‘Trial Balance Report’
  • enter end date for the report and click ‘Generate Report’

Check that the VAT account total (there may be more than one VAT account in some systems so you may need to add or subtract values) which will be negative (credit) if owed, positive (debit) if a refund is due, ties up with the box 5 figure on the VAT Return.

Where these figures do not agree, you will need to identify the difference and make corrections as necessary before restarting the process by generating the VAT Report again.

In particular check that the prior VAT period payment(s) or refund(s) have been correctly processed and appear in the VAT account transactions, and that any fines or penalty payments have been processed to an appropriate expense account (note: although a cost to the business, when it comes to year end tax returns such fines and penalties are not normally an allowable expense for tax).

In Central Accounting or Central ERP:

  • right click on ‘Accounts’, ‘Transaction Log’, and ‘Open Link in New Tab’ to open the menu in a new browser tab and use the ‘Advanced Search’ facility to search for mispostings to the VAT account; or
  • right click on ‘Accounts’, ‘Accounts’, and ‘Open Link in New Tab’ to open the menu in a new browser tab and click on ‘activity’ next to the VAT account to see individual transactions on the account.

3. generate the P&L Report for the VAT period

In Central Accounting or Central ERP:

  • click on ‘Accounts’, ‘Accounts’, ‘P&L Report’
  • enter start and finish dates for the report and click ‘Generate Report’

Check that the P&L Sales Revenue for the period ties up with the box 6 figure on the VAT Return, and if not, confirm that the difference is nothing more than older sales invoices being included on this VAT Return for the first time, either because they have been produced late i.e. after a previous VAT Return has been produced, or because previous Return(s) have been generated on a ‘cash basis’.

Where these figures do not agree, you will need to identify the difference and make corrections as necessary before restarting the process by generating the VAT Report again.

In Central Accounting or Central ERP:

  • right click on ‘Accounts’, ‘Transaction Log’, and ‘Open Link in New Tab’ to open the menu in a new browser tab and use the ‘Advanced Search’ facility to search for mispostings to the Sales Revenue account; or
  • right click on ‘Accounts’, ‘Accounts’, and ‘Open Link in New Tab’ to open the menu in a new browser tab and click on ‘activity’ next to the Sales Revenue account to see individual transactions on the account.

4. generate the Aged Debtors report and confirm that there are no deposits received from customers in the VAT period for which you should also account for VAT – you will need to work out the value of VAT included and add that to the box 1 figure, and then add the value excluding VAT to the box 6 figure before submission. This is effectively making a VAT deposit payment on deposits received in the period and so you net this off your next VAT Return (boxes 1 & 6) provided the relevant invoice has been raised on the customer from whom the deposit was received.

5. provided the VAT Return box 5 figure agrees with the account balance in the Trial Balance Report and the box 6 figure can be reconciled to the P&L Report, Sales Revenue line, then you can go ahead and Process the VAT Return, and file online.

6. we would suggest that you print the VAT Return and associated transactions list, the relevant page from the Trial Balance report showing the VAT account balance, and the P&L Report showing the Sales Revenue for the VAT period, and append these to a copy of the VAT Return as submitted, since these will be the starting point during any VAT Inspection (if the reports are particularly large you might consider printing to a .pdf file and storing electronically, but HMRC VAT Inspectors will normally want to work from a printed document).

7. if you are preparing a VAT Return on a ‘cash basis’, we would suggest that you still perform the above checks before ticking the ‘Cash Basis’ box and re-generating the Return. You might also want to check that the P&L Report, Sales Revenue figure, plus the customer debt at the beginning of the period excluding VAT, less the customer debt at the end of the end of the period excluding VAT (you will have to calculate these values) approximates to the box 6 figure on the VAT Return before processing and filing the Return.