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HMRC internal manual

VAT Small and Medium Enterprises Assurance Manual

The trader report: comparison of trader report details with the VAT account and build up of VAT account

All traders are advised to maintain a VAT Account often referred to as a VAT summary, which forms part of the accounting system and pulls together the VAT elements of the other accounts (sales, purchases, for example) and gives a build-up of the monthly totals which go onto the VAT returns. This should be used to check:

  • the trader’s declarations as advised on the trader report from the Sift team or VISION, (or as shown on any actual returns retrieved) should be compared with the VAT account. Any apparent discrepancies should be investigated;

action under VAEC: VAT Assessments and Error Correction 

  • should be taken in respect of periods for which, in the absence of returns, assessments of tax and surcharge were issued; and
  • the figures entered in the VAT account as input tax and output tax respectively, should be compared selectively with books of original entry, such as day books, cash books, records of gross takings, or other accounts from which these entries are made. If the trader maintains one, reference should be made to the VAT control account to ensure that the opening balance agrees with the VAT return. Particular attention should be paid to any adjustments of output tax and input tax and the supporting documentation. Particular attention should be paid to voluntary disclosure entries to ensure that these are made in accordance with the guidelines issued.

Those original books of entry should be examined to the extent necessary to confirm that they are:

  • apparently being accurately totalled;
  • complete;
  • relate to the correct tax period (taking into consideration any approved non-standard tax period); and
  • that an entry is being made in respect of each department of the business and/or different trading methods.

Excessive time should not be spent on arithmetical checks, especially where:

  • the subsidiary accounts are self-balancing (in which case it is enough to check that any self-balancing was completed); and
  • they are subject to regular audit from independent external auditors.

In other cases, the possibility of persistent arithmetical errors being made should be borne in mind, for example posting of figures to the wrong columns, errors in “carry forward” figures or in totalling.

  • check that any sum paid to the Department, including adjustments and/or assessments, have not been entered in the Cash Book VAT column as Input Tax;
  • be alert to the inclusion of non-sterling invoices, which have not been converted to sterling. In particular invoices, from other countries, which use the VAT system and charge in Euros or another currency, may be included (perhaps unwittingly by accounting staff not involved directly with the supply) as a source of input tax;
  • checks should be made with subsidiary records to see that tax credit or debit notes issued or received are being properly accounted for;
  • check that Insurance Premium Tax (IPT) has not been claimed as input tax;
  • check the accuracy of the daybooks and subsidiary records, both for input and output tax. A few items in these records should be traced back through invoices to non-accounting records for example orders, forward to ledger accounts and cashbooks; and
  • a few purchase and copy sales invoices should be selected to check that they have been properly included in the inputs and outputs records respectively.