The aim of the turnover reconciliation is to reconcile a business’s annual revenue and input VAT as declared in the four quarterly VAT returns to the financial statements (P&L) of the same year.
Pursuant to article 72 of the new VAT Law there is a possibility (but also an obligation) to correct errors in the VAT declaration within 180 days of the end of a tax period. This “finalisation” gives the VAT payer the opportunity to produce a correct VAT declaration when reconciling the revenue or drawing up the annual accounts based on the final accounting figures (without criminal consequences). The VAT reconciliations became yet more important, because the “finalisation” mentioned above will not be possible without accurate preparation of VAT reconciliations.
The legislative body has laid down the details regarding VAT reconciliations in article 128 of the new VAT Ordinance. A VAT reconciliation according to art 128 of the new VAT Ordinance will have to include the following steps and elements:
1. Adding of the total turnover as per box 200 of all four quarterly VAT declarations of one year.
2. Determination of the total income as per the P&L of the same year; in order to determine this total income, the following will have to be taken into account:
a. the operating turnover reported in the accounts;
b. the revenues booked on expense accounts (expense reductions);
c. the inter-company charges that are not included in the operating turnover;
d. the sales of supplies;
e. the payments on account;
f. the other receipts that are not included in the operating turnover;
g. the benefits in kind;
h. the revenue abatements;
i. the bad debts; and
j. the closing entries, such as periodic accruals, the provisions and internal reclassifications that are not turnover relevant.
3. Comparison of the total turnover as per box 200 of all four quarterly VAT declarations and the total income as per the P&L.
4. From the input VAT reconciliation it must be possible to see that the input VAT according to the input VAT accounts (or other records) has been reconciled with the input VAT declared. The following steps will be required in this regard:
– Comparison of the total input VAT as per boxes 400 and 405 of all four quarterly VAT declarations of one year and the total resulting from all transactions of the same year that have been coded in the system with an input VAT code.
– Comparison of the total resulting from all transactions that have been coded in the system with an input VAT code and the total input VAT as per the input VAT accounts.
– Adding of all VAT burdened expenses from the expense accounts as well as of all capitalised expenses/investments and comparison with the total input VAT as per boxes 400 and 405 of all four quarterly VAT declarations.