Andrew Needham looks at some issues concerning VAT and direct taxes.
VAT and direct taxes (i.e mainly income tax and corporation tax) are often thought of as separate and unrelated. In principle, this is true; but in practice, errors in one can impact on the others.
A typical example is where a company fails to account for the VAT charged on a sale. This not only impacts on the VAT, but also the corporation tax due. The full amount received from the customer, including the portion which should have been accounted for as output VAT, will be recorded as sales income in the accounts, which in turn will result in the business’s taxable profits being overstated.
How to correct the errors
Reversing such errors is not straightforward. The taxpayer must consider which VAT
