VAT Reconciliation Doesn’t Have to Hurt (But Ignoring It Will)
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VAT reconciliation has given all accountants headaches at one point in their carriers. It may sound like a boring admin task, but it could be the one thing standing between you and a SARS nightmare — or a tidy refund. Most accountants either dread it or rush it. But when done right, VAT reconciliation can save your bacon and boost your bottom line.
Before you reconcile: recording the transactions
Each VAT period starts with the basics: your client records revenue and expenses through sales invoices and supplier bills. As these are processed, the VAT portion from each transaction is allocated to a VAT control account in the general ledger. This account reflects the running total of VAT owed to or from SARS — a mix of output VAT on income (liability) and input VAT on allowable purchases (asset). Only once these transactions are posted correctly can you begin an accurate reconciliation.
So, what is VAT reconciliation?
VAT reconciliation is the process of matching your VAT records in the general ledger with the VAT201 returns that were filed to SARS. In plain English: it’s double-checking that what you’ve told SARS matches what is recorded in the books.
This is important because:
SARS is getting stricter. Discrepancies can trigger audits or penalties. Yes, SARS actually checks whether the revenue that you declare agrees to that declared in the VAT 201 returns.
If you're underclaiming input VAT, you're leaving money on the table.
If you're overclaiming, you're walking into compliance quicksand.
If your turnover on VAT201 doesn't match your income statement, SARS may suspect fraud or misstatement.
Reconciling revenue
A revenue reconciliation confirms that the revenue declared in your VAT201 returns matches what is shown in your accounting records. In other words, does the money you've told SARS you've made match the actual turnover on your books? This ensures consistency between your financial statements and VAT returns and flags any income that may have been omitted or overreported.
How to do a VAT reconciliation
Pull your VAT201 returns
Download all VAT returns submitted for the relevant period.
Export your general ledger VAT control account(s)
Focus on accounts that record VAT on purchases (input VAT) and VAT on sales (output VAT). This is generally called a VAT control account which is sometimes split between into separate input and output VAT control accounts.
Match your figures
The reconciliation starts by agreeing the figures from the VAT control ledger account to the VAT 201 return for each period. Are the input and output VAT totals the same?
Identify the reasons for differences
If you have different amounts in your ledger, this may mean:
Duplicate invoices
Missed transactions
Transactions recorded in the incorrect period, or
Coding or allocation mistakes.
Once you identify these you will need to pass journals to correct your figures.
Document your reconciliation
Keep detailed records in case of an SARS audit. Use the template attached to document to document the reconciliation and how you dealt with the differences.
Practical Example:
Let’s say the VAT201 for August shows R120,000 output VAT and R80,000 input VAT. But when you check your GL, the numbers are not the same. There is only R115,000 output VAT and R75,000 input VAT. That R10,000 difference? Could be duplicate entries, misallocated expenses, or invoices sitting in someone’s inbox. Track it down before SARS does.
If you use an accounting software with built-in VAT reporting tools, it can speed up the process. The cleaner your data, the easier your life.
Practical Example:
Let’s say your VAT201 for August shows:
Revenue excluding VAT: R800,000
Output VAT: R120,000 (which implies sales of R800,000 @ 15%)
Input VAT: R80,000
Your VAT control account in the general ledger for August shows the following balances:
VAT Control account - liability: R40,000, consisting of:
Output VAT: R115,000
Input VAT: R74,000
Sales revenue (excluding VAT): R850,000
What are the differences?
The revenue included on the VAT 201 for August is R50,000 less than what is in the ledger. This is due to a sales invoice that was recorded on 31 August, but it was only issued on 2 September.
R6,000 more input VAT was claimed on the VAT return in August then recorded in the ledger. Looking at the reasons, it came to light an R40,000 expense of R40,000 and input VAT of R6,000 was recorded in July in the ledger. The input VAT, however was only claimed in August.
What are the reasons?
After looking at the reasons, you find the following:
An invoice for R50,000 was posted late and not included in VAT201
Supplier invoices for July were claimed only in August.
What can you do to fix the problem?
Adjusting journal to correct the output VAT
To record the missing sale:
Dr Accounts Receivable R57,500
Cr Sales Revenue R50,000
Cr Output VAT R7,500
The R6,000 input VAT was already recorded in the ledger in the previous month. There is no further journal necessary, as the differences will balance out between July and August.
