We must first highlight the importance of VAT compliance and what it means when they go wrong
Having had first hand experience of what can happen when processes are not standardised, I can’t emphasise the point enough.
We won a new client which was a great result for the firm. After we had received professional clearance, a full review was carried out and we identified the VAT treatment had changed in the last two quarters.
On review, it was identified that the income that previously had been accounted for correctly at 20% VAT was now being incorrectly recorded as zero rated.
This was incorrect and resulted in an under-declaration of approximately £60,000 of output tax. This not only resulted in a penalty being imposed by HMRC but interest was also charged which meant significant financial implications for our client.
Although we cannot be certain as to the reason why the returns in the previous two quarters were incorrect it was almost certainly down to a complete lack of structure and sufficient controls/
systems.
It could have been a lack of review process, lack of communication can also play an important part.
We break down the VAT returns process into three stages
Stage 1: Before you start your VAT return
As you well know, the build-up to any VAT return can define the entire process. So much depends on these early stages being managed well; what you do here underpins how accurate you are later on.
At InChart Accounting Solutions we consider both strategic and
operational level when working through each stage.
At this stage, we consider two things when looking to ensure we hit the strategic mark:
Manage VAT deadlines - in our firm, we have a process where we monitor and manage our clients' VAT return deadlines and remind those clients well in advance when deadlines are approaching.
Monitor bookkeeping quality - much of what we do hinges on our clients’ bookkeeping quality. We`re checking client accounts for accuracy on a regular basis, of course, good practice for lots of reasons. In the context of VAT returns, having that kind of visibility is paramount. We can then be confident that the data we’re basing the VAT return on is fully up to date.
Stage 2: Preparation of your VAT return
If stage one was the completeness of records, stage two is all about
accuracy.
At a strategic level, there’s not much to be said other than check the work, then check again.
The review process is extensive but at this stage, we`ll be looking at:
Multi coded transactions
Duplicated transactions
Duplicated contacts
Draft invoices
Reconcile Debtors & Creditors Ledgers
Stage 3: Before you file the VAT return
Your VAT return is now prepared. But the review process doesn’t end here. There are a handful of other things we need to look out for before we finally file the return. At a strategic level, this is once again all about checks. However, it’s also making sure those checks follow a standardised format – running from A to Z.
Essential checks before you file
Check high risk account codes,
Key ratio checks for VAT boxes 1-6
Check high value transactions
Reconcile VAT control account to the balance sheet
Review not VAT transactions
Compliance is a regulatory requirement. It’s not always the most exciting service we’ll provide to our clients, but it’s one we know they value.
What is your VAT return process, let me know in the comments?
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