Reconciling Sales and Purchases Before Filing a VAT Return: Best Practices for Saudi Corporate Taxpayers

Why VAT Reconciliation Matters

• Ensures that sales invoices and purchase invoices align with VAT obligations.
• Prevents discrepancies between your VAT return and actual business transactions.
• Facilitates faster VAT refunds and reduces the risk of penalties from ZATCA.
• Helps detect fraud, duplication, or missing invoices before submission.

Key Areas ZATCA Reviews During VAT Audits

• Consistency between VAT return values and accounting records.
• Accurate application of standard (15%) and zero-rated VAT categories.
• Validity of input VAT claims on purchases.
• Compliance with invoice formatting and timing rules under Saudi VAT law.

Step-by-Step Guide to Reconciling Sales

1. Extract Sales Data: Pull all sales invoices for the VAT period from your ERP or accounting system.
2. Check VAT Rates: Ensure each transaction is correctly assigned to standard, zero-rated, or exempt categories.
3. Match with Bank Statements: Verify payments received against invoices issued.
4. Account for Credit Notes: Adjust total sales for any issued credit notes.
5. Reconcile with VAT Return: Ensure the net taxable sales match the amount declared.

Step-by-Step Guide to Reconciling Purchases

1. Compile Purchase Invoices: Collect all supplier invoices within the VAT period.
2. Validate VAT Registration Numbers: Ensure suppliers are VAT registered in Saudi Arabia where applicable.
3. Check Input VAT Eligibility: Confirm that claimed input VAT is for allowable expenses under VAT law.
4. Match with Payments: Verify that purchase invoices match amounts paid and recorded in the books.
5. Adjust for Debit Notes: Deduct any amounts related to debit notes issued by suppliers.

Common Mistakes in VAT Reconciliation

• Including pro forma invoices instead of actual tax invoices.
• Failing to exclude non-deductible expenses from input VAT claims.
• Mismatching transaction dates between invoices and bank receipts.
• Incorrect VAT coding in accounting systems.

Best Practices for Smooth VAT Filing

• Maintain a monthly reconciliation process instead of waiting until the filing deadline.
• Use automated accounting software to match invoices and payments.
• Implement internal review checklists before submission.
• Retain digital and physical copies of all supporting documents for 5 years.

Sample VAT Reconciliation Table

Final Checklist Before Filing Your VAT Return

• ✔ All sales and purchases for the period are recorded and reconciled.
• ✔ VAT rates applied correctly across all transactions.
• ✔ Input VAT claims are for eligible expenses only.
• ✔ Credit and debit notes are fully accounted for.
• ✔ Supporting documentation is complete and organized.