We have wrestled with this issue for years. Now I am faced with a cash accounting client with a £7k difference in the year despite adding on the VAT included in Debtors and Creditors. The system has been regularly 'reconciled' so that items have been flagged as being included on a VAT REturn each quarter.
Can anyone suggest methodology to check this over?
Thanks
Carole Jordan
Replies (5)
Please login or register to join the discussion.
VAT reports
Not sure if this would help you further - I have just discovered a report available to download from Sage which lists the VAT relating to outstanding debtors and creditors.
It might help with the reconciliation process.
Sage say this report is for use when switching from Cash to Standard accounting but I think it would be useful for quarterly reconciliations too.
It is called "Sage Accounts New VAT Report Pack" and is available for several versions of Sage.
VAT Liabilty payment
ensure the posting of the #quarter cheque liabilty has been handled correctly and likewise any VAT refunds if applicable - both the posting and the VAT code for the transaction
Cash Accounting and Sage
As Paul suggests, my first step would be to check for T9 transactions on the control accounts - the only T9 transactions should be the VAT Return journals to clear quarterly input and output tax from 2200 and 2201 to the VAT Liability account 2202.
Other items to check
1) Reverse charge -Sage doesn't do this very well. If codes T7 or T8 have been used, and the Sage generated VAT 100 has values in box 2, check that the VAT journal has been posted correctly
2) Payments on account in the sales and purchase ledger. Check the audit trail to make sure that VAT on PAs and SAs is at the same rate as any invoice it is subsequently allocated to. Not very easy if the payment covers several invoices.
3) VAT calculation - has the client opted to "include earlier unreconciled items" when running the VAT return calculation. If not, you could have transactions recorded in earlier periods (and sitting in 2200 and 2201) which have not been inculded in the VAT Return calc
4) Calculate the exact value of unpaid VAT shown in the aged debtor and creditor reports. Nasty laborious job, but is more accurate that calculating a straightforward 17.5% / 15% of the debtor and creditor control account balances and will ensure you exclude any payments on account and non-VAT sales or supplies.
Non VAT codings?
I'm not sure what system you are using but I'm assuming that VAT outputs in the NL less VAT on debtors less VAT inputs plus VAT on creditors does not equal the VAT Return generated by the system.
The first thing I would do is look for non-VATable postings in the VAT accounts (in Sage, these would typically be "T9" transactions). Broadly there should only be the quarterly VAT journals (if those have been posted).
I would also check that the VAT Liability account is clear (or a recognisable figure). It wouldn't be the first time that a VAT payment has been posted to VAT inputs!
If the Flat Rate Scheme is in use, a different appraoch will be needed.
That may be a start.
Paul