The first step to keeping out of trouble is to understand the basics of the paperwork required. The second step is to ensure accurate financial records are maintained and many types of accounting software and bookkeeping software can assist by at the very least producing a required audit trail to support the financial figures entered on the quarterly vat tax return.

To determine the need for accuracy and compliance it is worth first summarising the work a vat inspector might carry out when the business is visited to carry out an inspection of the business financial accounts.

While each customs and excise inspector might tend to conduct the audit in their own way typically the totals for several quarterly tax returns will be compared with the total sales turnover and total expenditure to indicate if the returns are likely to be accurate. In addition cash and bank accounts may be examined to determine if the volume of payments and receipts also reflects the scale of financial transactions.

Having put the overall financial position into perspective the vat inspection will involve selecting several previous quarters which will be audited in more detail. The number of quarters and the choice of quarters are likely to be dependent upon the quality of accounting records being maintained and the overall view of accuracy.

It is quite normal for the inspector to select the most recent vat return to audit plus a second quarterly return submitted in the previous 12 months and potentially a third quarter from a period in the previous 2 years. Any unusual figures shown up from the audit overview are more likely to determine which quarters will be examined in detail.

In examining each quarter the vat inspector will establish the audit trail and verify the totals making up the financial figures declared on the value added tax return. Individual amounts making up the audit totals would then be checked by individually checking sales and purchase invoices in addition to most major amounts.

Some items selected for audit during the inspection will be checked through to the cash and bank accounting records. Many items of major financial significance and items of a repetitive nature will also be audited through to final receipt of money from the debtor receipts and creditor payments.

Several sales invoices and purchase invoices will be selected by the inspector for tracing through the debtor and creditors accounts to ensure that customer or supplier has also entered the same transaction into their financial accounts.

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This cross checking with third parties is also likely to be carried out as the inspector is likely to have details of transactions from third parties which he expects to find recorded in the business vat accounts being inspected.

Maintaining records of the value added tax is an essential accounting function required from the accounting or bookkeeping software employed. Getting the basics right can help considerably to avoid the minefields that lay in wait for those businesses that fail to address the subject with sufficient importance.