Understanding Variances in VAT Return Totals

Ensuring that your nominal ledger and VAT return align is crucial for accurate VAT reporting. This alignment helps verify that your business is paying or claiming the correct VAT amounts.

Why Variances Occur

Small differences between the VAT return and nominal ledger totals can occur and are generally not a cause for concern. Common reasons include:

• VAT Rounding:
  • Minor discrepancies, often amounting to a few pennies, can arise due to how VAT is rounded during calculations.
  • For example, cumulative rounding differences on invoices or journal entries may cause slight mismatches between the nominal ledger and VAT return totals.
• Manual Journals
  • Manual journals that have been posted to the nominal, but not included on the VAT return itself, these usually cause larger imbalances.

Key Considerations

• Acceptable Variances:

  • Variances should be minimal and within an acceptable range.
  • For instance, a few pennies or very small percentages of the total VAT amount are typically deemed acceptable by auditors and HMRC.

• Submitting Your VAT Return:

  • If the variances are within acceptable limits and can be justified (e.g., rounding differences), it is safe to submit the VAT return.
  • Always document any discrepancies to provide an explanation if required during audits or inspections.

Best Practices

• Regular Reconciliation:

  • Regularly reconcile your nominal ledger against your VAT reports to ensure ongoing accuracy and spot any unusual discrepancies early.

• Investigate Larger Differences:

  • If variances are substantial, investigate further to ensure there are no errors in data entry, nominal postings, or VAT calculations.

• Keep Records:

  • Maintain detailed records of reconciliations and explanations for variances to ensure compliance and assist with audits.