---
slug: vat-return-does-not-match-books
title: "Why your VAT return never matches your books — and how to reconcile the two"
h1: "Your VAT return and your books disagree. Here is why."
meta_description: "Sales in your accounts rarely equal sales in your VAT returns. Here are the seven reasons that gap appears, and a reconciliation you can actually run each month."
focus_keyword: "VAT reconciliation Nepal"
secondary_keywords: "VAT return mismatch, VAT vs books, input credit disallowed, VAT audit Nepal"
category: vat
status: draft
schema_type: Article
review_due_on: "annually"
---

At some point in every audit, someone adds up twelve VAT returns, compares the total to the sales figure in the accounts, and finds they do not agree. Then a quiet panic starts, because the assumption in the room is that a difference means something is wrong.

Usually it does not. Sales in your books and sales in your VAT returns are measuring two different things, on two different bases, under two different sets of rules. A difference is expected. What matters is whether you can *explain* the difference — because that is exactly what an officer will ask you to do.

## The seven reasons the two numbers differ

**1. Exempt and zero-rated supplies.** Your books record all revenue. Your VAT return separates taxable, zero-rated and exempt supplies. If you have any exports or exempt lines, the taxable figure will be lower than your total revenue by design.

**2. Timing.** Accounting recognises revenue when the standard says it is earned. VAT attaches to the time of supply, which is driven by invoicing and delivery rules. A sale invoiced at the very end of a month, or goods delivered before the invoice was raised, can fall into different periods on each side.

**3. Credit notes and returns.** Sales returns hit revenue immediately in the accounts. In the VAT return they follow the credit note rules, and if the credit note was issued late or not at all, the two will not line up.

**4. Non-revenue transactions that still carry VAT.** Disposal of a fixed asset, a self-supply, or goods taken for personal or business use may attract VAT without ever appearing in your revenue line.

**5. Advances.** Money received before supply may create a VAT event without being revenue yet, or may not, depending on the arrangement.

**6. Discounts.** Trade discounts netted off in your books may have been shown differently on the invoice, and the invoice is what the return follows.

**7. Plain error.** A return filed from a spreadsheet that was never tied back to the ledger. This is the one people fear, and it does happen — but it is the last thing to conclude, not the first.

## The reconciliation that keeps you out of trouble

The goal is not to make the two numbers equal. It is to produce a short statement that walks from one to the other:

```
Revenue as per books                        XXX
Less: exempt supplies                      (XXX)
Less: zero-rated / export supplies         (XXX)
Add/less: timing differences at period end  XXX
Add: VAT-able transactions not in revenue   XXX
Less: credit notes timing                  (XXX)
                                          -----
Taxable supplies as per VAT returns         XXX
```

Run it monthly and it takes fifteen minutes. Run it once at the year end across twelve months and it takes three days, because by then nobody remembers which invoice caused which gap.

The same logic applies on the purchase side: input credit claimed will not equal purchases in the books, because some purchases carry no credit, some credit is blocked, and some invoices arrive in a later period than the expense.

## Where input credit quietly disappears

The credit side causes more assessments than the sales side, and almost always for the same reasons:

**The invoice is not a proper tax invoice.** No supplier PAN, no VAT registration, wrong name, missing details — and the credit fails, even though the expense is entirely real and the money was genuinely spent.

**The supplier never deposited it.** Your credit depends on the counterparty's compliance, which is uncomfortable but true.

**The expense category is blocked.** Certain categories do not carry credit regardless of documentation.

**The claim is out of time.** Credit claimed after the permitted window is disallowed no matter how valid it was.

The pattern is that input credit is a documentation problem far more often than an accounting one. A business with clean books and sloppy invoice filing will lose credit; a business with rough books and disciplined invoice filing usually will not.

## What to do before an officer asks

Keep three things ready, and a VAT review stops being stressful:

- A monthly reconciliation between books and returns, with the differences named.
- A purchase register that ties to the credit claimed, with the invoices actually retrievable.
- A short note on any unusual month — a large credit note, an asset disposal, a bulk export — written while you still remember what happened.

That file is what turns a two-week query into a one-hour meeting.

## Frequently asked

**Should my sales in books equal my VAT returns?** No. They measure different things. What you need is a reconciliation that explains the difference, not an identical number.

**A supplier gave me a handwritten bill. Can I claim credit?** Credit depends on holding a valid tax invoice with the required particulars. An informal bill generally will not support a claim, however genuine the purchase.

**I forgot to claim credit in the right month. Is it lost?** There is a window within which credit can be claimed. Outside it, the credit is generally lost, which is why monthly discipline is worth more than year-end effort.

**Does a difference automatically mean a penalty?** No. An unexplained difference invites scrutiny; an explained one usually ends the conversation.

---

*VAT rules, thresholds and rates change. This article covers the reasoning; confirm the current provisions before relying on specific figures.*
