Compliance is a routine, not an event
Businesses often treat VAT as something that happens at return time. In reality the return is only a report of records that should already exist. If the records are assembled in the final days of the period, the return will reflect whatever documentation happened to survive.
The monthly cycle
A workable cycle has four parts, and each one has an owner inside the business.
- Capture: every sale and purchase recorded as it happens, with the supporting document filed
- Reconcile: VAT accounts agreed to the sales and purchase registers and to the bank
- Report: the return prepared from the reconciled figures, with a working file retained
- Retain: documentation stored so it can be produced later without searching
Where input VAT is usually lost
Input VAT is most often lost for administrative reasons rather than technical ones — a purchase document that never reached the accounts team, or a challan that cannot be located. Assigning responsibility for collecting purchase documentation is one of the highest-return controls a small business can put in place.
Preparing for questions
Assume that at some point a period will be examined. The test is simple: can you produce, for any month, the register, the return, the supporting documents and the reconciliation that connects them? If yes, the examination is procedural. If no, the work begins under time pressure.