Accounts verification of VAT

Accounts verification of VAT

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In particular, where the client prepares their own VAT Returns.

One particular client, who uses the second hand margin scheme, is annoyed that we didn't orginally spot an error where they had reclaimed VAT on the purchase, but had applied the second hand scheme to the sale! These errors were spotted on the second year and we went back and checked the previous year and found more.

We had spent literally hours explaining to this client how the scheme worked until we were sure they fully understood the scheme. We prepared their first VAT return so they could use this as an example. We had split the VAT workings to show the vehicles in the scheme, and those outside, so as to make the workings easy to follow.

When preparing accounts, we reconcile VAT, and look for obvious errors such as VAT being reclaimed on Insurance, etc. and we make sure each transaction has been included, but we don't re-do the VAT workings or check the VAT on every item, as has been explained to our client. Luckily, we did find the errors and advised our client to correct them, but it was obvious they held us reponsible for not finding them sooner.

In our defence, it should surely be obvious to anyone that you cannot reclaim £500 VAT on the purchase of a vehicle and pay over £150 VAT on the sale of the same vehicle. Or am I just looking to defend the indefensible?

Just how much verification do you do?

Replies (6)

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Image is of a pin up style woman in a red dress with some of her skirt caught in the filing cabinet. She looks surprised.
By Monsoon
13th Apr 2011 12:19

Year end: it's not an audit

If a client does their own VAT returns and have opted not to pay me to review them, then a) they are taking the risk they will not be correct indofar as they are DIYing it and b) they've opted for me not to do it so I won't do it as part of year end.

As part of year end I would check the basics and flag up anything I noticed (such as standard tax code being claimed on train travel, or anything obvious if they use a margin scheme). So pretty much what you've said you do.

The client should know what they are paying for, how much reconciliation/investigation is included with the year end procedure, and this should be stated in the engagement letter.

If they are doing the returns themselves, they shouldn't expect you to then check them for free as part of a separate service. If they want you to do a detailed analysis then they can pay for it, and if they don't then they can't expect you to pick up all their errors!

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chips_at_mattersey
By Les Howard
13th Apr 2011 12:22

Verification of VAT

(I am writing as a VAT Consultant, not an Accountant.)

The difficulty with the second hand scheme is that it is a special scheme, and the VAT accounting is not as straightforward as many other types of business. This means that errors are more frequent, and it is more time-consuming to identify and correct.

I would want to advise the Client that the second hand margin scheme does require more work to operate and check.  He has to appreciate that, and that must be paid for either by him employing someone familiar with the scheme to do the VAT Returns, or for you to do sufficient work at the year end.

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By ShirleyM
13th Apr 2011 12:53

Thanks Monsoon & Les

For restoring my confidence. Our terms and conditions, and our quotations, detail exactly what checks/reconciliations will be completed by us and what records will be provided by the client.

I suppose I am mostly angry with myself for having taken such pains to make sure the client understood the requirements of the scheme (and it isn't easy with an argumentative client who thinks they know better cos their mates in the motor trade have told them how to do it!!!), but I really thought I had got the message across.

I had already sacked this client once, and taken him back after I received an apology, so I am doubly angry with myself.

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By chatman
13th Apr 2011 15:21

I would just scan but not check every transaction

I scan the transactions supporting the VAT return and correct any errors I notice, but do not check every single one unless they pay me to do the bookkeeping, in which chase I would have seen every transaction anyway.

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Teignmouth
By Paul Scholes
13th Apr 2011 23:06

Not your problem

Just like making sure the bank recs, and debtors/creditors/wages controls agree we make sure the VAT reconciles and check through for obvious problems or even opportunities (eg FRS).  All part of making sure the accounts are reasonable and that you carry out shallow health checks on the books.

Given that you have set it out in terms of engagement I'm not sure what else you could have done and so it seems the only mistake you made was to take the client back. I shouldn't lose any sleep and if you get any more grief or, as I suspect, they have already over stepped the mark, let them go for good.

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By thacca
14th Apr 2011 13:25

Engagement Letter

My engagement letter (source CCAB guidance) says:

1. We will write up the books in so far as they are incomplete when presented to us.

2. We will prepare the company’s business accounts in accordance with generally accepted accounting practice from the books, accounting records and other information and explanations provided to us on your behalf.

3. We will submit the accounts to you for approval.

4. We will submit the approved accounts to Companies House on your behalf.

Do other have more a explicit description of what you do and don't do?

VAT, where the client has provided sufficient records we always reconcile the VAT Returns to the control account and net sales. In many cases it's the most time consuming procedure of accounts prep. Do others do the same?

 

 

 

 

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