Streamlining Your VAT Reconciliation Process with Sage Software

The VAT Reconciliation Challenge

As the end of the VAT quarter approaches, many businesses find themselves in a state of panic. The need to sift through numerous reports and the uncertainty of the process can be overwhelming. When asked how long it takes to reconcile their VAT return, responses range from a few hours to several days. However, with the right understanding of the software they're using, this task should take no more than a few minutes.

Understanding Your Accounting Software

The key to efficient VAT reconciliation lies in understanding your accounting software. This applies not only to Sage Software users but to all accounting software users. Every transaction entered into the accounts is automatically collected in the VAT Control Accounts. For Sage Software users, VAT on purchases is collected in nominal code 2201, and VAT on Sales is collected in nominal code 2200.

Entering Data Correctly

When entering data on a daily basis, it's important to ensure accuracy. For sales invoices, if all your sales are standard rated VAT, the program will automatically add 17.5% (UK) to the net. If you have a mix of sales, your product's VAT code should be set to the applicable rate. This ensures that there's little need to worry about the Sales VAT at the quarter end.

Complying with VAT Law

VAT law requires that your invoice informs the recipient of the VAT rate charged. When you receive a purchase invoice or make a payment, the document should indicate whether you have been charged at the standard rate, exempt rate, zero rate, or the 5% reduced rate. When entering the invoices into Sage, ensure the correct tax rate code is used and that the screen VAT amount matches the invoice.

Streamlining the VAT Reconciliation Process

If you're confident that every sales invoice has the correct VAT and every purchase invoice was checked as it was entered, there's no need to spend hours at the VAT quarter end checking the same figures. The process can be simplified as follows:

• Confirm that all transactions over the VAT quarter have been entered.
• Reconcile your bank accounts to the last day of the VAT quarter.
• Check that the balance in nominal codes 2200 Sales VAT matches box 1 on the VAT return over the same date range.
• Verify that the amount in 2201 purchase VAT matches box 4 on the VAT return over the same date range.

If these steps are followed, the process should take less than a minute. The remaining tasks involve archiving, printing your reports for potential VAT audits, and clearing out the control accounts using a journal to start fresh for the new quarter.

In conclusion, VAT reconciliation doesn't have to be a daunting task that only surfaces at the end of three months. By letting your software manage it on a daily basis, you can rest easy knowing that your VAT is in order.