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Business has incorrect VAT status - GB

Marsha Galicia avatar
Written by Marsha Galicia
Updated over 3 weeks ago

XBert Type: Standard
Accounting Software: Xero
Country Restriction: GB only
Risk Type: Tax Risk
Business Function: Contacts

Overview

This XBert checks for UK suppliers whose VAT registration status is incorrectly recorded in your accounting system. It helps prevent the risk of reclaiming VAT from suppliers who are no longer VAT registered, which can lead to issues with HMRC and potential repayment obligations.

What it does

XBert reviews your active suppliers in Xero and matches them to HMRC records. If a supplier’s VAT status in Xero indicates that VAT is claimable (e.g. INPUT), but HMRC shows that the supplier is not registered for VAT, XBert flags the discrepancy.

This helps ensure your VAT Returns are accurate and prevents you from claiming input VAT on purchases where it is not valid.

How it works

XBert checks for suppliers where:

  • The supplier is active in your accounting system

  • Their tax type is set to INPUT (i.e., you’re claiming VAT on their bills)

  • They are matched to HMRC, and their VAT status is not active

  • There has been any journal activity involving the supplier

If these conditions are met, XBert raises an alert because VAT may be incorrectly claimed.

Note: This alert currently cannot filter by the de-registration date, so any VAT activity—even before they became unregistered—may trigger the alert. Future improvements will allow for more precise detection.

Example / Use Case

Your business has been dealing with a supplier for years. Over the last 12 months, that supplier deregistered for VAT due to reduced turnover. However, your system still treats them as VAT registered, and you continue to claim VAT on their invoices.

HMRC performs an audit, discovers the discrepancy, and issues an invoice demanding repayment of all input VAT claimed during the period after deregistration. You now need to chase the supplier for reimbursement, putting strain on your cashflow.

Accounting software

Xero

Which countries it supports

United Kingdom only

Processes

This XBert falls under the Compliance category.

To resolve:

  • Check the supplier’s VAT registration status

  • Open the supplier’s contact record in your accounting software

  • Update the default VAT setting for purchases based on the supplier’s status

  • If needed, request revised bills from the supplier that exclude VAT

  • Review any previous VAT claims and determine whether they were valid

Doing this helps you avoid penalties and ensures your VAT records remain HMRC compliant.

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