XBert Type: Standard
Accounting Software: Xero, QuickBooks
Country Restriction: GB only
Risk Type: Tax Risk
Business Function: Bookkeeping
Overview
This XBert identifies instances where VAT has been applied to accounts designated as non-VAT in your accounting system. Such discrepancies can lead to compliance issues and potential financial liabilities.
What it does
XBert scans your accounting records to detect income or expense journals over the past year that have non-zero VAT amounts applied to accounts marked as non-VAT, such as 'Zero Rated Income', 'Exempt Expenses', or 'NO VAT'. It flags accounts where the total VAT amount exceeds £10 or is less than -£10, indicating potential misclassification.
How it works
The system analyzes journal entries to identify:
Accounts with tax names like 'NO VAT', 'Zero Rated', 'Exempt Expenses', etc.
Transactions with non-zero VAT amounts associated with these accounts.
Accounts where the cumulative VAT amount over the past year exceeds £10 or is less than -£10.
By highlighting these accounts, XBert helps ensure that VAT is correctly applied, maintaining compliance with tax regulations.
Example/Use Case
Consider a scenario where a business changes the default tax setting for a sales account from standard VAT to 'VAT Exempt'. An employee, unaware of this change, continues to use this account for invoicing, resulting in invoices being sent without the required VAT. This oversight could lead to underpayment of VAT and potential penalties from HMRC.
Accounting software
This XBert is compatible with UK accounting software platforms, including:
Xero
QuickBooks Online
Which countries it supports
United Kingdom
Processes
This alert falls under the 'Compliance' process, focusing on ensuring that VAT is correctly applied to relevant accounts.
To resolve:
Review Account Settings: Check the default tax settings for the flagged accounts to ensure they align with the nature of transactions recorded.
Adjust Transactions: If VAT has been incorrectly applied, amend the affected transactions to reflect the correct VAT treatment.
Update Procedures: Implement checks to prevent future misapplication of VAT to non-VAT accounts.
Consult with Advisors: If uncertain about the correct VAT treatment, seek guidance from a tax professional or accountant.
By addressing these issues promptly, you can maintain accurate financial records and ensure compliance with VAT regulations.
For more information, refer to the HMRC VAT guidance to understand VAT obligations and account classifications.