If you run a VAT-registered business and use invoice accounting, you likely know that accurate VAT reporting is crucial. But are your VAT controls up to HMRC’s latest standards?
HMRC has recently released new Guidelines for Compliance to help businesses like yours establish a robust tax control framework. These guidelines outline the best practices for identifying and managing tax risks to ensure VAT is declared correctly. Let’s break down the key points.
Order to Cash: Getting Sales Right
The order to cash process involves every step from placing a sales order to issuing a tax invoice and receiving payment. The goal is simple: record all transactions and payments timely and accurately.
HMRC’s guidelines suggest controls at each stage, such as:
- Sales orders: Ensure they’re only processed within approved customer credit limits.
- Goods Dispatch: Accurately and promptly record shipments using Goods Dispatch Notes.
- Tax invoices: Always use the correct tax rates on invoices.
Procure to Pay: Managing Purchases Effectively
The procure-to-pay process covers everything from initiating purchase orders to paying supplier invoices. Effective controls here help prevent errors and fraud. HMRC recommends:
- Purchase orders: Only approve orders for valid requisitions.
- Receipt of supplies: Only accept deliveries that match a valid purchase order.
- Invoice processing: Post invoices to accounts payable only if they reflect goods or services received.
- Payments: Ensure payments are only made for received goods or services.
Keeping Employee Expenses in Check
When it comes to employee expenses, the guidelines detail expected controls for capturing, authorising, and paying claims. This includes system checks and workflow processes to ensure everything is above board.
Examples include:
- Motor expenses, business entertainment, and mobile phones: Implement controls to verify and approve these expenses appropriately.
Record to Report: Accurate Financial Reporting
Record to report refers to the process of collecting and presenting financial information, like balance sheets and profit and loss statements. Strong controls are needed both for system implementation and for general ledger operations.
This ensures that your reports are accurate and provide valuable insights for strategic decision-making.
VAT Reporting: Staying MTD-Compliant
For businesses using invoice VAT accounting, compliance with Making Tax Digital (MTD) is non-negotiable. The guidelines highlight the need for:
- MTD compliance: Ensure VAT reporting meets MTD standards.
- VAT report accuracy: Implement controls to review and verify reports regularly.
Handling Manual Adjustments
Sometimes, manual adjustments are necessary to correct errors or consolidate data. The guidelines outline the expected controls for these adjustments, ensuring accuracy and preventing misuse.
Outsourcing: Managing Third-Party Risks
If you outsource any VAT-related functions, you’ll need controls in place to manage these third-party relationships effectively. The guidelines cover the required checks and balances for outsourced tasks.
Why You Should Read the Guidelines
HMRC’s Guidelines for Compliance (GfC8) are essential reading for VAT-registered businesses using invoice accounting. It’s worth reviewing your processes to ensure you’re meeting the recommended standards and protecting your business from potential tax risks.
Need Help with VAT Compliance?
Navigating VAT controls can be challenging, but we’re here to make it simple. Contact Jon Davies Accountants for expert guidance on VAT compliance and ensuring your business is audit-ready. Let’s keep your VAT reporting accurate and stress-free!
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