The four quarterly returns are filed and the annual accounts are closed: so VAT is done? Not quite. One last step is missing, one that many people don't know about or postpone even though it is mandatory: the annual reconciliation.
In it you reconcile your submitted returns against the final annual accounts and report any defects you find. Doing it properly substantially reduces the risk of an expensive additional assessment in an audit. Skipping it leaves differences standing that later get charged with default interest.
What the annual reconciliation is
The annual reconciliation, often called finalisation, has two parts, both anchored in Art. 128 of the VAT Ordinance.
The turnover reconciliation shows how the declaration for the tax period, taking the various tax rates or the net and flat tax rates into account, is brought into agreement with the annual accounts. The starting point is your income statement; the end point is the figures in your submitted returns.
The input tax reconciliation shows that input tax according to your input tax accounts or other records has been reconciled with the input tax declared. It is usually far quicker than the turnover side.
The FTA prescribes no format. There is no template for the reconciliation itself, though there is a binding form for the correction. What matters is that your reconciliation is documented so a third party can follow it, because the FTA can ask to see the documents at any time.
How to go about it
The reconciliation needs the definitive income statement. While bookings are still being made, you are reconciling against a moving target.
Split income statement revenue into taxable, exempt-with-credit and exempt-without-credit turnover, and taxable turnover further by rate. Exclude non-consideration such as donations or subsidies.
Under agreed consideration, account for receivables and work in progress at the start and end of the year, plus advance payments. This is where most differences arise.
Compare recorded input tax per the input tax accounts with the amounts declared, including input tax corrections for private shares and mixed use.
Differences you can trace and justify as irrelevant for VAT purposes are documented internally. Genuine defects are reported with the corrective return.
The right form: annual correction or period correction
Two routes lead to a correction, and they are regularly confused.
You use the period corrective return when you want to correct an individual monthly, quarterly or half-yearly return during the current tax period; that FTA page is in German.
For the annual reconciliation, by contrast, the FTA states that only the form «Jahresabstimmung (Berichtigungsabrechnung nach Art. 72 MWSTG)» may be used. With it you supplement or correct the submitted returns of the past tax period, and you declare only the differences to the returns already submitted, not all the figures again.
And the point many people miss: if the comparison with the annual accounts revealed no defects, no corrective return has to be submitted. The reconciliation itself is still mandatory; you simply don't have to send anything in when everything matches.
The two deadlines: 180 and 240 days
Two numbers govern the timetable, and they mean different things.
The 180 days concern you: if you find defects when closing the accounts, you have to correct them under Art. 72 of the VAT Act no later than in the reporting period in which the 180th day since the end of the financial year falls. For a financial year ending on 31 December, that day falls at the end of June, so the correction belongs in the second-quarter return at the latest.
The 240 days concern the FTA: if no corrective return has arrived within 240 days of the end of the financial year, the FTA assumes your submitted returns are complete and correct and the tax period is finalised. With a calendar financial year, that is the end of August.
In practice: between the annual closing and the end of August it is decided whether the tax period is cleanly closed. Postponing the reconciliation to the autumn effectively pushes it past that line.
What a late correction costs
From which follows a simple rule: the earlier you notice an error, the less it costs. A difference spotted during the year is corrected with the period corrective return. Only what slips through to the annual closing goes via the annual corrective return, with interest from the original due date.
The details on default interest and payment are on the FTA page on the annual VAT reconciliation and under paying VAT, both in German.
Where the differences typically come from
Not every difference is an error. Anyone who has done the reconciliation once knows the same recurring causes.
The most common is timing: under the agreed-consideration basis the tax claim arises when the invoice is issued, while in the income statement the revenue lands according to accrual accounting. Receivables, work in progress and advance payments at the start and end of the year therefore explain a large share of the deviations.
Then there is revenue booked to expense accounts, meaning expense reductions, proceeds from sales of fixed assets, consideration for private use of company vehicles, and non-consideration such as dividends, donations or subsidies, which do not belong in the tax base at all.
The judgement is what counts: differences you can trace and justify as irrelevant for VAT purposes are documented internally without being reported. Differences arising from supplies not booked or booked incompletely have to be corrected with the corrective return, in your favour or against you.
Mandatory under the net tax rate too
A widespread misconception: businesses using net tax rates don't need an annual reconciliation. Wrong. For the annual reconciliation the FTA explicitly refers to the VAT Info on net tax rates and the one on flat tax rates as well.
The work is simply different in shape: instead of input tax you mainly reconcile turnover by rate. With several net tax rates, this is the annual opportunity to check whether the split by activity still holds. More on that in the article on the net tax rate versus the effective method.
Preparing the reconciliation with Infinity
The annual reconciliation is unpleasant when the bookkeeping is done after the fact. It is routine when turnover and input tax are recorded correctly as you go.
That is exactly what Infinity, the Swiss AI accounting, is built for: Live Accounting connects your bank account and suggests bookings in real time, Live Capture reads receipts from a photo including the VAT rate. The income statement, the starting point of the turnover reconciliation, is then ready when you need it, and the input tax accounts are continuously maintained.
For the effective method Infinity calculates the quarterly VAT returns, so the declared values and the bookkeeping come from the same source from the start. More under features, and how filing works in the portal is covered in the article on VAT deadlines and the FTA portal.
Frequently asked questions about the annual reconciliation
Is the annual reconciliation mandatory?
Yes. The taxable person has to reconcile the returns with the annual accounts and correct any defects found. Turnover and input tax reconciliation are anchored in Art. 128 of the VAT Ordinance.
Do I have to submit it if everything matches?
No. If no defects were found, no corrective return has to be submitted. You still have to prepare the reconciliation and document it comprehensibly, because the FTA can ask to see the records.
What do the 180 and 240 days mean?
Defects found have to be corrected no later than in the reporting period in which the 180th day since the end of the financial year falls. If no corrective return arrives within 240 days, the FTA treats the tax period as finalised.
Which form do I need?
For the annual reconciliation, only the form «Jahresabstimmung (Berichtigungsabrechnung nach Art. 72 MWSTG)», in which only the differences are declared. Individual periods during the tax period are corrected with the period corrective return.
Does it apply under the net tax rate as well?
Yes. For the annual reconciliation the FTA explicitly refers to the VAT Infos on net tax rates and flat tax rates too. There, what is mainly reconciled is turnover by rate.
Cleanly closed rather than left open
The annual reconciliation is the keystone of the tax period. With continuously maintained books it becomes an hour of comparison rather than days of reconstruction.
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