Before you file your VAT Return, you will need to review it carefully to make sure that it is correct for the period. You may be missing items which could affect your VAT return potentially underpaying or overpaying VAT.
The best time to review
This depends on the basis for your VAT returns: Accrual Basis – based on invoice date Start checking at the end of the VAT quarter. You will have approximately 5 weeks to get your VAT return right, so you have a little bit of time. Suppliers may still be sending month end invoices for the next couple of weeks – keep on top of these and post them as they come in. Cash Basis – based on payment date We recommend you start reviewing at least 2 weeks before the end of your VAT return, possibly earlier, this gives you time to act and prepare – be proactive. This is especially important on a cash basis to make sure you have sufficient cash resources to make payment when it is due. A large cash receipt at the end of the quarter may give you sufficient cash reserves to pay your upcoming VAT bill – so long as you don’t spend it in the meantime!
Accrual Scheme Tips
If you are on an Accrual Scheme you want to be looking for any missing invoices or bills for the period or any duplicates. Mistakes do happen so remove duplicates if you find them. Are you missing any invoices and short of time? Prioritise VAT registered suppliers. Reconcile to your supplier statements of account so you know you have captured everything.
Cash Scheme Tips
In addition to the checks above, there are further considerations if you are cash accounting for VAT. If you are on a Cash Scheme you should be aiming to have your bank, credit card, petty cash and PayPal accounts fully reconciled for the period. Any payments received or deposits made should be allocated to the correct invoice.
Check P&L Run Rates
If your system allows (Xero does of course!), run a 3 month Profit and Loss account for your business – for the periods covered by your VAT return and look for quarterly anomalies. in this example, the sales may well be correct but where are the corresponding purchases? Perhaps we did spend £1000 on entertainment over the Christmas period but are we missing motor expenses? Any why is the rent so high. Have we just had a rent review or have we misposted the invoice? Check carefully as some of these may impact your VAT return.
Cash management
Getting caught out and not having enough money to pay your VAT at the quarter end will be expensive and stressful. Open a deposit account for your VAT and make regular deposits throughout the quarter to ensure you have enough funds available to cover your VAT when it’s due. You could put away 20% of all cash receipts each quarter, then at the year end – not only will you have put away enough cash to have covered your VAT returns during the year. You will also have covered some of your Corporation Tax. If you are managing a tighter cash flow – reconcile your accounts monthly and check your VAT liabilities at the end of each month. If you put away enough cash on a monthly basis to cover that month’s VAT, then it might not be so painful when the payment date arrives at the end of the quarter.
A final thought
We appreciate that when you are running your own business it can be difficult to remember everything you should be considering when approaching the end of a VAT period. Our checklists are intended to provide you with a simple tool to work through each quarter. Print, laminate and re-use!