| The first step to keeping out of trouble is to | | | | sufficient importance. |
| understand the basics of the paperwork required. | | | | A first step should be to ensure sales invoices are |
| The second step is to ensure accurate financial | | | | issued for each sale and a copy of that sales |
| records are maintained and many types of | | | | invoice is retained and accurately entered in the |
| accounting software and bookkeeping software | | | | financial accounting records. The design and |
| can assist by at the very least producing a | | | | information contained in the sales invoice should |
| required audit trail to support the financial figures | | | | comply with the value added tax rules. |
| entered on the quarterly vat tax return. | | | | The details to be shown on a sales invoice are a |
| To determine the need for accuracy and | | | | sequential number to uniquely identify the invoice |
| compliance it is worth first summarising the work | | | | and the date issued which is the tax point, |
| a vat inspector might carry out when the | | | | business name and address, customer name and |
| business is visited to carry out an inspection of | | | | address, vat registration number, a description of |
| the business financial accounts. | | | | the goods and quantity supplied, the percentage |
| While each customs and excise inspector might | | | | charged and the amount of output vat. |
| tend to conduct the audit in their own way | | | | The accounting software employed and used to |
| typically the totals for several quarterly tax | | | | record the sales invoices should produce an audit |
| returns will be compared with the total sales | | | | trail for both output tax and input tax on |
| turnover and total expenditure to indicate if the | | | | purchase invoices received. |
| returns are likely to be accurate. In addition cash | | | | Should errors be discovered after the quarterly |
| and bank accounts may be examined to | | | | return has been submitted which total less than |
| determine if the volume of payments and | | | | 2,000 the correction can be made on the next |
| receipts also reflects the scale of financial | | | | available quarterly tax return. If an error |
| transactions. | | | | exceeding 2,000 pounds is discovered the |
| Having put the overall financial position into | | | | customs and excise office must be informed in |
| perspective the vat inspection will involve selecting | | | | writing |
| several previous quarters which will be audited in | | | | There are a multitude of errors made in the |
| more detail. The number of quarters and the | | | | accounting records supporting the quarterly vat |
| choice of quarters are likely to be dependent | | | | return. Using a proprietary brand of bookkeeping |
| upon the quality of accounting records being | | | | or accounting software can eliminate many of |
| maintained and the overall view of accuracy. | | | | these errors and produce an audit trail which at |
| It is quite normal for the inspector to select the | | | | the very least gains the respect of the vat |
| most recent vat return to audit plus a second | | | | inspector. |
| quarterly return submitted in the previous 12 | | | | The vat inspector will find checking easier and |
| months and potentially a third quarter from a | | | | having been presented with an audit trail has |
| period in the previous 2 years. Any unusual figures | | | | greater confidence the value added tax liability |
| shown up from the audit overview are more | | | | declared is more likely to be accurate. |
| likely to determine which quarters will be | | | | Common areas where errors occur in recording |
| examined in detail. | | | | sales vat output include charging value added tax |
| In examining each quarter the vat inspector will | | | | on sales of business assets, supplies and gifts to |
| establish the audit trail and verify the totals | | | | employees at reduced prices, not accounting for |
| making up the financial figures declared on the | | | | the full sales price when an item is taken in part |
| value added tax return. Individual amounts making | | | | exchange, including vat on credit notes. |
| up the audit totals would then be checked by | | | | Errors reclaiming vat inputs on purchases occur |
| individually checking sales and purchase invoices in | | | | because businesses claim value added tax when a |
| addition to most major amounts. | | | | proper vat receipt has not been obtained, claiming |
| Some items selected for audit during the | | | | input tax on entertainment expenses which is not |
| inspection will be checked through to the cash and | | | | allowed and also claiming input on vehicle |
| bank accounting records. Many items of major | | | | purchases. Businesses may not claim vat on |
| financial significance and items of a repetitive | | | | imported goods until the vat certificate has been |
| nature will also be audited through to final receipt | | | | received. |
| of money from the debtor receipts and creditor | | | | Finally an area which confuses many small |
| payments. | | | | business owners is the correct recording and |
| Several sales invoices and purchase invoices will | | | | treatment of under and over assessments of the |
| be selected by the inspector for tracing through | | | | tax. These items should be accounted for as |
| the debtor and creditors accounts to ensure that | | | | receipts or payments into or out of the value |
| customer or supplier has also entered the same | | | | added tax due account and not entered in the |
| transaction into their financial accounts. | | | | sales and purchase records. |
| This cross checking with third parties is also likely | | | | If these assessments are entered into the sales |
| to be carried out as the inspector is likely to have | | | | ledger or purchase ledgers the items will appear in |
| details of transactions from third parties which he | | | | the figures produced for the quarterly return |
| expects to find recorded in the business vat | | | | which is wrong. It is wrong because the value of |
| accounts being inspected. | | | | the under or over assessment will effectively be |
| Maintaining records of the value added tax is an | | | | doubled up. |
| essential accounting function required from the | | | | The quarterly vat return should be signed and |
| accounting or bookkeeping software employed. | | | | dated by the business owner or a designated |
| Getting the basics right can help considerably to | | | | responsible official who verifies that the tax return |
| avoid the minefields that lay in wait for those | | | | is correct and is legally responsible for the |
| businesses that fail to address the subject with | | | | accuracy when signing the return. |