XBert Type: Standard
Accounting Software: Xero, QuickBooks Online
Country Restriction: United Kingdom only
Risk Type: Tax Risk
Business Function: Purchases
Overview
This XBert checks your purchase bills for VAT that contradicts the tax code keyed on each line. VAT should follow the tax code, but sometimes a line carries a VAT amount when the code says it should not, or a standard-rated cost is keyed with no VAT at all. When that happens, the figures on the bill disagree with the codes used and the VAT return can be mis-stated. Catching it before the return is prepared lets you correct the figure now, rather than facing an HMRC adjustment, interest or a penalty later.
What it does
It reads each line on a bill and compares the VAT keyed against the tax code on that line. A bill can break the rule in one of two ways: a line coded zero-rated, exempt, out-of-scope or no-VAT still carries a VAT amount, even though you cannot recover or charge VAT on those supplies; or a standard-rated supply has been keyed with no VAT at all. It counts the affected lines and adds up the mis-stated VAT so you can see, in pounds, how much is in question on the bill. Reverse-charge lines, where zero VAT is correct, are left out.
How it works
The XBert reads each bill line and compares the VAT keyed against the tax code. It raises a flag when:
a line is coded zero-rated, exempt, out-of-scope or no-VAT, yet still carries a VAT amount; or
a document's standard-rated lines carry no VAT at all.
To keep the flag accurate and avoid false alarms, it deliberately leaves some lines out:
reverse-charge lines are excluded, because zero VAT is the correct treatment there; and
only material amounts are raised, so you are not chased over a few pounds.
This may sometimes be a legitimate adjustment, but more often it is a keying or coding slip worth a quick check before the VAT return is prepared. Left uncorrected it can mean VAT wrongly claimed in box 4 or output VAT understated in box 1, a digital record that no longer holds together under Making Tax Digital, and reclaimed VAT that HMRC can disallow with interest and a penalty on the difference. Errors found after submission mean correcting the return and reworking the records, which takes time and erodes trust in the numbers.
Example/Use Case
Priya runs the books for Hartley Joinery Ltd. A supplier bill for insurance comes in and she codes it to a No VAT code, but a VAT figure left over from the previous template is still sitting on the line. The bill posts with VAT against a code that can never carry it, and when the quarter's VAT return is prepared that VAT is pulled into box 4 as recoverable input tax. HMRC later reviews the return, disallows the reclaim because insurance is exempt, and charges interest on the amount plus a small penalty. The same week, a standard-rated materials bill is keyed with the VAT box left blank, so the firm quietly under-claims VAT it was entitled to. XBert flags both bills, showing the affected lines and the mis-stated VAT, and a two-minute check of each bill against its tax code puts both right before the return goes out.
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 categories and HMRC rules specific to the UK.
Processes
This alert sits within your Purchases process and helps ensure the VAT on each bill agrees with the tax code keyed before the VAT return is prepared. To resolve it:
Select RESOLVE NOW to open the bill in Xero and review the flagged line or lines.
Check each line's tax code against the VAT keyed: a zero-rated, exempt, out-of-scope or no-VAT line should carry no VAT, and a standard-rated line should carry VAT at the correct rate.
Correct the code or the VAT amount so the two agree, then confirm the bill total is right.
Make sure these corrections are in place before the VAT return is prepared, so boxes 1 and 4 are stated accurately.
Once the bill has been corrected, mark the XBert as resolved.