How do I do a VAT reconciliation?

How do I do a VAT reconciliation?

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Hi All

I am a trainee accountant at a new firm . As one fo my first jobs I have been given the task to prepare a statutory accounts file. One of the tasks is to reconcile the VAT account. How do I do this as I have never done or learnt about it before. I know that for a bank rec one reconciles the bank statements to the 'cash book'/bank nominal ledger on the system. But what do you reconcile the vat account on the general ledger to? I find it confusing to reconcile it to a one page VAT return because it seems as if it would be impossible to find a difference that way?

What would my starting point be?

Please help!
Trainee Accountant

Replies (5)

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By AnonymousUser
31st Mar 2004 17:19

I don't wish to be rude but............
If you are being honest with us and you are a trainee acct go and ask whoever is training you. If you cannot ask them, either leave the firm and find a position with a firm who does have someone you can ask or leave the profession. This is the first of many many questions you will need to field if you are to make a career of acctcy
If you are not being honest with us, good luck in your exams.

In answer to your question, what you are trying to do is to identify what the actual vat postion for the accting period is ie for a simple date of supply trader whose accts period and vat periods dovetail the invoiced vat on sales less the vat on on purchases less payments made to hmce equals closing balance.

The reconciliation is the task of proving or identifying otherwise that the amount declared to hmce on vat returns for the period equals the closing balance figure above. If there is a variance it is your task to identify where the variances arose and arrange for the client to amend his next vat return accordingly.

Life is not always simple and so you need to consider such things as serious misdeclaration penalties, 3 year time limits, mhce enquiry adjustments, adjustments at the beginning and end of year if the accts period and vat periods do not dovetail, etc

I trust that this helps

With regards

Martin Curtis

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By Accounting WEB
29th Mar 2004 20:01

Thanks - but still need help
Thanks everybody for your help!

However my questions remains unanswered - what do I reconcile the VAT return to? Is it the nominal ledger accounts? Do I reconcile the supporting schedules to the VAT return to the VAT nominal account for the period?

Like I said before I know that for a bank rec one reconciles the bank statements to the nominnal ledger. Is it the same for a VAT account?

Secondly, what do I do with the differences. For example in the task that I am performing at the moment the VAT return details on the accounting software differ from what is shown on the actual VAT return. I am pretty sure that many of the differences are because some purchase invoices for a particular VAT quarter weren't posted until the VAT return had been done. They weren't accounted for in the subsequent VAT returns because they were dated for the previous period.

Please help.

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By AnonymousUser
29th Mar 2004 16:25

What do you want to reconcile to?
Accounting reconciliations always start will a number - usually some sort of balance such as that shown on a bank statement, identify differences between what is recorded by the bank and what is recorded by the business to reconcile to the balance in the books.

If what is required is a reconciliation of turnover to outputs or expenditure to inputs, you have to identify what the reconciling differences are going to be so that you can work out what to look for.

For some businesses,it is very easy but for others it can be very complicated. It is even more complicated if you have VAT group registrations.

Some of the main differences are -

- Timing: Income and expense are recognised in different periods to those in which those transactions might be recognised as VAT outputs and inputs;

- Scope: Some items in the financial statements might no be recognised as inputs or outputs for VAT e.g. salaries and wages, some provisions and accruals and ntra-group transactions in a VAT group registration;

- Values: The measures may be different e.g. in the case of second hand dealers, the VAT is calculated on the margin and negative margins are ignored;

- Deemed transactions: There can be events that give rise to a VAT charge even though there is no transaction as such in the financial accounting records.

There are other differences but it is suffice to say that you need to find out what reconciliation(s) are wanted and also the accuracy requred. It can be done.

MDG

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By neileg
30th Mar 2004 12:52

Ask the boss!
As martin said
First you need to consider......
As an opening gambit I would suggest that you turn to your line-manager for help, it is not only easier to explain in person but easier for your understanding to be checked. Also if your bosses don't know where your experience is weak, how can they know when to train you?

A VAT reconcilliation would normally be between the VAT return nearest the year end, and the balance on the nominal ledger. The reconcilliation will show the discrepancies. How you deal with these depends on your role. If this is an audit, and the reconcilliation shows the the net difference is less than the materiality level, you do nothing. If you are preparing accounts then you may wish to inform the proprietor so that the mistakes can be included on the next return, and post corrections in the accounts. However the approriate action should be to ask your line manager. Initiative is all very well, but you must act within the relevant guidelines for this assignment.

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By AnonymousUser
29th Mar 2004 09:43

First you need to consider......
As an opening gambit I would suggest that you turn to your line-manager for help, it is not only easier to explain in person but easier for your understanding to be checked. Also if your bosses don't know where your experience is weak, how can they know when to train you?

In the first instance you must consider whether your client is cash-accounting or date of supply.

In the case of date of supply you will take the closing balance from the last reconciliation, add the vat due on sales as per the invoices, deduct the vat recoverable on purchases, deduct any payments made to HMCE, adjust for any motor scale charge, P.use of telephone etc, the resulting figure is the reconciled balance and this can be proven. If the VAT period does not dove-tail with the y/e then create a virtual VAT Return for the period since the last actual return. This amount plus any amounts not yet paid and any under/over payments will reconcile with the figure above.

If the client is cash-accounting then the job is much more interesting! In addition to the VAT Control account you will also need to prepare an Output VAT Control account and occasionally an Input VAT Control account if your client has debtors (usually) and/or creditors (less likely) In an OVCA you will need to start with the amount of OV invoiced but not yet received from customers, add OV invoiced in period, deduct value of OV received from customers in period (this is the figure which gets transferred to the Vat Control account) adjust for customer over/underpayts, credit notes, bad debts and the balancing figure is the value of OV charged to but not yet paid by customers, this figure can be reconciled by looking at the closing debtors.

Haven't commented on the new flat rate scheme, have probably confused you enough!

Hope the above helps a little. It takes my staff some time to get their heads around the OVC account but the idea 'clicks' eventually.

There is however no substitute for having someone looking over your shoulder.

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