VAT problems due to lack of audit trial, true balances, and cash versus accrual basis

[eugenevdm]

We have been using WHMCS for at least 5 years.

 

We have also been using the same accountants for about 4 years.

 

About two years ago our accountants came to us claiming that due to our "billing system" we had a major outstanding VAT liability. The couldn't exactly tell us what the problem is but said something in the lines of WHMCS is a snapshot based system and they need an audit trial based / true accounting system. To be honest, I still don't know exactly what they meant because I am not an accountant and they don't seem to understand WHMCS very well at all.

 

Nevertheless, we carried on, giving them our monthly income reports and what not. Then we were told that because of these "billing" problems they recommend we rather go over from accrual basis to cash basis, in order to have more accurate books. Technically speaking this would be illegal in our country due to our high turnover, but the accountants insisted this would be the only way to work around the problems they are having with the billing system.

 

Now again recently I was confronted with another VAT surprise. Apparently now what's happening is monthly snapshots are taken of our books, after we apply debit orders, and this compared with the month before. To be honest this entire process is very foreign and unclear to me. Apparently now I will be getting VAT surprises every two months due to a new discrepancy that was picked up.

 

I am now engaging with a consultant to assist me with this issue. He said that for starters we should approach WHMCS and ask them if we can get an audit trial of every change on every record in every invoice, with regards to status and line amounts.

 

I would just like to know from the community if anyone has experienced the same problem? Has anyone's accountants complained saying that what happens in WHMCS doesn't truly reflect what's happening in the books? Can anyone explain to me in clear terms exactly why WHMCS might be screwing with my VAT?

[m8internet]

WHMCS should not be used for financial accounting purposes

It can only be used for the turnover and to confirm the amounts received to your payment gateways

All other costs are on separate invoices

Sounds like your accountant is not aware of how WHMCS works and is relying on it to cut corners

[eugenevdm]

WHMCS should not be used for financial accounting purposes

It can only be used for the turnover and to confirm the amounts received to your payment gateways

 

Yes this I understand.

 

All other costs are on separate invoices

 

This I don't quite understand. Are you referring to expenses? We use a separate system for creditors called Pastel.

 

Sounds like your accountant is not aware of how WHMCS works and is relying on it to cut corners

 

My accountant admits after four years that they don't quite understand how to WORK with WHMCS as a system to process VAT correctly. I don't think they are cutting corners, I think they simply try to find workarounds that are complex and prone to error whilst trying to circumvent the "shortcomings" of a billing system versus an accounting system.

 

My consultant said I should post this question:

"If a bill is raised in WHMCS, but cancelled 2 months later, how can it be used to confirm turnover since at first it will appear to include the bill, but later it will presumably appear to exclude it?"

[bullfrog]

My consultant said I should post this question:

 

"If a bill is raised in WHMCS, but cancelled 2 months later, how can it be used to confirm turnover since at first it will appear to include the bill, but later it will presumably appear to exclude it?"

 

Hi Eugene,

 

You would have to have strict rules in place not to delete any invoices on WHMCS at all and a few others.

 

Then what you will have to do is modify the invoicepdf template to enable the extra invoice number functionality marketted as UK/EU vat compliance. Which will allow you to create a new numbering for invoices, like CRN0001 for credit notes. I would also add in some custom coding to make the credit notes have different headings. You will also have to make various modifications to make the negative database numbers appear as positive values on the credit notes.

 

So then at the end of the VAT month you take all the cancelled invoices and add them as credit notes (Negative values on the line items, R75 domain added as refund of -R75 ) to null the VAT on those. After this that tax month is closed and any unpaid invoices are seen as debtors. If in the new month, an old invoice needs to be cancelled, it can't be anymore. It will have to be set to paid and a new credit note of its negative value needs to be made out in the new month.

 

This way a credit note will have a negative value (and negative VAT value) which can then be used to find the difference between the paid and the cancelled invoices to find the real VAT liability.

 

With the invoices marked as paid and then credited as a credit note later and the above followed, you should get a usable data set from WHMCS to integrate with something like pastel.

 

I am not an accountant, but have worked extensively with WHMCS in implementing our own VAT systems in South Africa and been working on these problems for us too. I believe the above should work, but will take a bit of development work. I would definitely advise talking to your accountants about the above ideas before implementing of course.

[eugenevdm]

You would have to have strict rules in place not to delete any invoices on WHMCS at all and a few others.

 

We have had strict rules in place for 5 years to not delete invoices and we have removed this functionality from all users. The problem is invoices statuses can be also be marked as for collection, refunded and cancelled at any one time. In a hosting environment this happens frequently.

 

Then what you will have to do is modify the invoicepdf template to enable the extra invoice number functionality marketted as UK/EU vat compliance. Which will allow you to create a new numbering for invoices, like CRN0001 for credit notes. I would also add in some custom coding to make the credit notes have different headings. You will also have to make various modifications to make the negative database numbers appear as positive values on the credit notes.

 

So then at the end of the VAT month you take all the cancelled invoices and add them as credit notes (Negative values on the line items, R75 domain added as refund of -R75 ) to null the VAT on those. After this that tax month is closed and any unpaid invoices are seen as debtors. If in the new month, an old invoice needs to be cancelled, it can't be anymore. It will have to be set to paid and a new credit note of its negative value needs to be made out in the new month.

 

This way a credit note will have a negative value (and negative VAT value) which can then be used to find the difference between the paid and the cancelled invoices to find the real VAT liability.

 

With the invoices marked as paid and then credited as a credit note later and the above followed, you should get a usable data set from WHMCS to integrate with something like pastel.

 

This sounds relatively complex and coding which can be pricey and mission critical if something is done incorrectly.

 

What I ask myself here is why should one go and change (modify by way of code) a billing system so that VAT reports are accurate?

 

As far as I know WHMCS is UK based and the UK uses VAT. Surely all WHMCS' UK customers can't be sitting with the same problem?

 

I propose that these coding changes, or core modifications of the WHMCS system is performed by Matt and his team. This could be the only way that one can get true faith in the system.

 

I am not an accountant, but have worked extensively with WHMCS in implementing our own VAT systems in South Africa and been working on these problems for us too. I believe the above should work, but will take a bit of development work. I would definitely advise talking to your accountants about the above ideas before implementing of course.

 

I will enquire with my accountants. I am also going to approach Matt privately to get his comments on this post. Thank you for so much for your input thus far.

Edited December 12, 2012 by eugenevdm

[openmind]

It's working absolutely fine for us and we are a UK based VAT registered comnpany. The main reason for this is that we simply use WHMCS to issue invoices and collect payments. Nothing more taxing (no pun) than that.

 

These invoices and payments are then imported into Xero which we use for accounting and VAT calculations. As mentioned above, WHMCS is not accounting software and should not be treated as such.

[scurrell]

It's working absolutely fine for us and we are a UK based VAT registered comnpany. The main reason for this is that we simply use WHMCS to issue invoices and collect payments. Nothing more taxing (no pun) than that.

 

These invoices and payments are then imported into Xero which we use for accounting and VAT calculations. As mentioned above, WHMCS is not accounting software and should not be treated as such.

 

Same thing works fine for us too - except we use Sage.