XBert Type: Standard
Accounting Software: Xero, QuickBooks Online
Country Restriction: United Kingdom only
Risk Type: Tax Risk
Business Function: Purchases
Overview
This XBert checks the lines on a purchase bill for VAT codes that contradict how the account is set up. Each chart of accounts account carries a default VAT treatment, and when a line's VAT code sits on the opposite side of the taxable / exempt boundary to that default - for example a standard-rated code on an account configured as zero-rated or exempt - the VAT on that line can be silently mis-stated. Catching it now lets you confirm the line is coded correctly before the figure flows through to your VAT return.
What it does
For each posted line on a bill, this XBert compares the line's VAT code against the default tax treatment configured on the chart of accounts account the line is coded to. When the two sit on opposite sides of the taxable / exempt boundary - a standard VAT code on a zero-rated or exempt account, or an exempt code on a standard account - it counts the line as a mismatch and flags the bill so you can confirm each affected line is coded correctly.
How it works
The XBert raises a flag when a posted line's VAT code crosses the taxable / exempt boundary versus the account's configured default. To keep the alert accurate and avoid false alarms, it only fires when:
the line's VAT code sits on the opposite side of the taxable / exempt boundary to the account's default treatment;
the line is material, so very minor amounts are not flagged; and
the line is not coded as reverse charge.
It deliberately excludes reverse-charge lines, because these legitimately differ from the account default. A mismatch may still be legitimate - the account default sometimes needs overriding - so the XBert reports how many lines on the bill contradict the account's configured default and asks you to confirm each one is correct.
Example/Use Case
Priya runs the books for Harborne Joinery. A supplier bill for printed marketing brochures is posted to the Advertising account, which is set up as standard-rated. By habit, Priya picks the "Zero Rated" VAT code on the line because printed leaflets are often zero-rated. On this bill, though, the design and artwork element is standard-rated, so the line should have carried standard VAT. The bill is approved and the VAT return is filed with the input VAT understated. A quarter later the firm's accountant spots the mismatch during the year-end review, has to prepare an adjustment, and Harborne Joinery has carried more cost than it should have for three months. A two-second check of the line code against the account default would have caught it before the return went in.
Accounting software
This XBert runs on bills from Xero and QuickBooks Online.
Which countries it supports
This XBert applies to the United Kingdom only. It uses VAT treatments and HMRC rules specific to the UK.
Processes
This alert sits within your Purchases process and helps make sure the VAT on each bill line is coded in line with how the account is set up. Getting it right matters because the wrong VAT code mis-states the input or output VAT on the line, so the figures on your VAT return are inaccurate; reclaiming VAT on a line that should be zero-rated or exempt can mean an over-claim, which HMRC may recover with interest and a penalty under Making Tax Digital; and treating a standard-rated cost as exempt understates recoverable VAT, so the business pays more than it needs to. To resolve it:
Select RESOLVE NOW to open the bill in Xero and review each flagged line.
Confirm the VAT code on the line is correct for what was bought.
If the line is genuinely a different treatment to the account default, leave it as it is and file this XBert.
If it was coded in error, correct the VAT code on the line before the VAT return is prepared, then re-save the bill, so a later correction, an adjustment, or rework once the period is closed is avoided.
Once corrected, mark the XBert as resolved.