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HMRC internal manual

VAT Small and Medium Enterprises Assurance Manual

Event audit screens on EF: accounts analysis

The Output Tax Reconciliation section identifies the sales from the annual accounts and compares this to the net outputs value, calculated from tax declared. Any significant discrepancy should be investigated and explained.

The Input Tax Reconciliation section analyses the standard rated purchases and expenses from the annual accounts, and compares this to the net standard rated input values calculated from tax reclaimed. Any significant discrepancy should be investigated and explained.

The TPR section addresses the credibility of the mark - up declared on standard rated goods for resale. The mark - up calculated should be compared with the actual mark - up on standard rated goods for resale, and any discrepancies resolved.

The Balance Sheet section is useful for consideration of the profitability and viability of the business and should always be completed as an aid for DMU. The additional blank fields no’s 39 and 40 can be utilised to record values including VAT Creditor, trade debtors and dividends.

Officers should consider what reliance can be placed on the annual accounts. For example:

  • has the accountant made any qualifying remarks or notes, or any endorsement to suggest they cannot take full responsibility for confirming the accuracy of the accounts?
  • to what extent has an auditor relied on the statements of the directors in judging the accuracy of those figures? and
  • are figures said to be estimated, or approximate, or a reconstruction of lost records?

If the trader is partly exempt, particular attention should be paid to additions to land and buildings, plant and equipment, as these could have capital goods scheme implications. Disposals of land and property should also be considered.

VAT balances may be included in ‘Other taxes and Social Security’ or may be identified separately. Where VAT balances are not shown separately on the annual accounts balance sheets, the officer should ascertain whether there is any VAT included in these figures, and if so, the amounts. The balances can then be compared with the relevant VAT period to confirm they have been accounted for.