VAT Audit by NRS: Complete Preparation Checklist

A VAT audit from the Nigeria Revenue Service (NRS), formerly known as FIRS, can be a stressful experience for any business. However, with proper preparation and documentation, you can navigate the process smoothly and demonstrate your compliance. This guide provides a comprehensive checklist and practical advice for preparing for and managing a VAT audit.

Understanding VAT Audits

What is a VAT Audit?

A VAT audit is an examination by NRS (Formerly FIRS) of your business's VAT records, returns, and compliance. The auditor verifies that:

• You've correctly calculated output VAT
• You've appropriately claimed input VAT
• Your VAT returns match your actual transactions
• You've filed and paid on time
• Your records meet legal requirements

Types of VAT Audits

Audit Type	Description	Trigger
Desk Audit	Review of documents submitted to NRS office	Random selection, discrepancy check
Field Audit	Auditors visit your business premises	Higher risk cases, large businesses
Investigation	In-depth examination	Suspected fraud, significant discrepancies
Refund Audit	Verification before issuing VAT refund	VAT refund application

Common Audit Triggers

• Large VAT refund claims
• Significant discrepancies between returns and third-party data
• Consistent nil returns despite business activity
• Random selection as part of compliance programs
• Industry-wide compliance initiatives
• Informant reports

The VAT Audit Process

Stage 1: Notification

You'll receive an audit notification letter specifying:

• Audit scope (periods to be covered)
• Documents required
• Audit date and location
• Auditor contact details

Action Required:

• Acknowledge receipt promptly
• Review the scope carefully
• Begin gathering documents immediately
• Consider engaging a tax professional

Stage 2: Document Submission

Provide requested documents within the specified timeframe.

Action Required:

• Compile all requested records
• Organize logically (by period, type)
• Make copies—never surrender originals
• Document what you've submitted

Stage 3: Audit Examination

Auditors review your records and may ask questions.

Action Required:

• Designate a contact person
• Be available to answer queries
• Provide additional documents if requested
• Document all interactions

Stage 4: Preliminary Findings

Auditors share initial findings for your response.

Action Required:

• Review findings carefully
• Identify any errors in the audit
• Gather evidence to dispute incorrect findings
• Respond within the given timeframe

Stage 5: Final Assessment

NRS issues final assessment with any additional VAT, penalties, and interest.

Action Required:

• Pay agreed amounts promptly
• Object formally if you disagree
• Keep all assessment documents

Document Checklist by Category

Output VAT Documentation

Sales Invoices

• [ ] All sales invoices for the audit period
• [ ] Sequential invoice numbering
• [ ] Credit notes issued
• [ ] Debit notes issued
• [ ] Proof of invoice delivery to customers

Sales Records

• [ ] Sales ledger/journal
• [ ] Sales by VAT category (standard, zero-rated, exempt)
• [ ] Export sales documentation
• [ ] Point of sale records (if applicable)
• [ ] E-commerce platform reports

Revenue Reconciliation

• [ ] Bank statements showing receipts
• [ ] Receivables aging reports
• [ ] Cash sales records
• [ ] Revenue recognition schedules

Input VAT Documentation

Purchase Invoices

• [ ] All supplier invoices with VAT
• [ ] Verification of supplier VAT registration
• [ ] Import documentation (Bill of Entry, duty receipts)
• [ ] Service invoices from foreign suppliers

Purchase Records

• [ ] Purchase ledger/journal
• [ ] Input VAT by category
• [ ] Expense analysis
• [ ] Reverse charge calculations

Eligibility Evidence

• [ ] Evidence purchases are for taxable supplies
• [ ] Apportionment calculations (if mixed supplies)
• [ ] Documentation for capital purchases

VAT Returns and Payments

• [ ] Copies of all VAT returns filed
• [ ] Payment receipts/evidence
• [ ] Bank statements showing payments to NRS
• [ ] Any correspondence with NRS about returns
• [ ] Amendment returns (if any)

General Business Records

• [ ] Certificate of Incorporation
• [ ] VAT Registration Certificate
• [ ] Tax Identification Number (TIN) documentation
• [ ] Board resolutions (where relevant)
• [ ] Contracts with major customers/suppliers
• [ ] Financial statements for the period

Common Audit Issues and How to Address Them

Issue 1: Missing or Incomplete Invoices

Problem: Auditor cannot verify output or input VAT due to missing invoices.

Prevention:

• Maintain systematic filing (physical and digital)
• Number invoices sequentially
• Regular reconciliation to identify gaps

If It Happens:

• Request duplicates from customers/suppliers
• Provide alternative evidence (bank statements, delivery notes)
• Be transparent about what's missing and why

Issue 2: Invalid Input VAT Claims

Problem: Claiming input VAT on invoices that don't meet requirements.

Common Deficiencies:

• Supplier not VAT registered
• Missing VAT registration number on invoice
• Invoice made out to different entity
• Personal expenses claimed as business

Prevention:

• Verify supplier VAT registration
• Check invoice details before claiming
• Separate personal and business expenses

If It Happens:

• Accept disallowance if claim was genuinely invalid
• Provide evidence if claim was valid but documentation was incomplete

Issue 3: Timing Differences

Problem: VAT declared in wrong period.

Examples:

• Invoice dated January, declared in March return
• Input VAT claimed before invoice received
• Credit notes not processed in correct period

Prevention:

• Clear cut-off procedures at month end
• Process invoices promptly
• Regular reconciliation

If It Happens:

• Explain the timing difference
• Show net effect is zero (just timing)
• Accept penalties if genuinely late

Issue 4: Incorrect VAT Rate

Problem: Applying wrong VAT rate (e.g., treating taxable as exempt).

Common Errors:

• Zero-rating domestic supplies
• Exempting taxable services
• Not charging VAT to government entities

Prevention:

• Regular review of product/service classifications
• Training for staff on VAT rates
• System controls for VAT application

If It Happens:

• Review all similar transactions
• Calculate correct VAT
• Discuss voluntary disclosure for reduced penalties

Issue 5: Unrecorded Cash Sales

Problem: Cash sales not reflected in VAT returns.

Indicators Auditors Look For:

• Bank deposits exceed reported sales
• Inventory movement doesn't match sales
• High cash-to-card ratio vs industry norm

Prevention:

• Record all sales regardless of payment method
• Regular cash reconciliations
• Point of sale systems with VAT integration

If It Happens:

• This is treated seriously
• Engage professional representation
• Consider voluntary disclosure if issues exist

Issue 6: Related Party Transactions

Problem: Transfer pricing issues with related companies.

Areas of Focus:

• Management fees from parent company
• Intercompany sales pricing
• Service charges between affiliates

Prevention:

• Document arm's length basis
• Maintain transfer pricing documentation
• Apply VAT correctly on intercompany transactions

Audit Interview Preparation

Common Questions Auditors Ask

1. Business Operations

• Describe your business activities
• What goods/services do you supply?
• Who are your main customers/suppliers?

1. VAT Processes

• How do you calculate output VAT?
• How do you verify input VAT invoices?
• Who prepares and approves VAT returns?

1. Specific Transactions

• Explain this large invoice
• Why was no VAT charged on this sale?
• What is this expense for?

1. Record Keeping

• Where are your records kept?
• Who has access to them?
• How long do you retain records?

Tips for the Interview

Do:

• Answer questions directly and concisely
• Say "I don't know, let me check" if unsure
• Take notes during the interview
• Ask for clarification if questions are unclear

Don't:

• Volunteer unnecessary information
• Speculate or guess
• Become defensive or argumentative
• Provide documents not specifically requested

Rights During an Audit

Your Rights

1. Notification - Right to reasonable notice before audit
2. Representation - Right to have a tax professional present
3. Clarification - Right to understand what's being requested
4. Response Time - Right to reasonable time to respond
5. Objection - Right to dispute findings through formal channels
6. Confidentiality - Right to have your information protected

NRS Auditor Powers

1. Access - Can access your business premises during working hours
2. Documents - Can request and examine records
3. Questions - Can question you, employees, third parties
4. Copies - Can take copies of documents
5. Seizure - In investigation cases, can seize documents

After the Audit

If You Agree with Findings

1. Pay the assessment promptly
2. Update your processes to prevent recurrence
3. Keep audit documentation for future reference

If You Disagree with Findings

Stage 1: Informal Resolution

• Discuss with the auditor
• Provide additional evidence
• Request supervisor review

Stage 2: Formal Objection

• File within 30 days of assessment
• State grounds clearly
• Attach supporting evidence
• May need to pay disputed amount pending resolution

Stage 3: Tax Appeal Tribunal

• If objection rejected
• Formal legal process
• Engage tax lawyers

Payment of Assessment

If VAT is due:

• Pay within 30 days to avoid additional interest
• Request payment plan if unable to pay in full
• Keep payment receipts

How Finora Prepares You for Audits

Finora provides audit-ready record keeping:

Comprehensive Transaction Records

Every transaction in Finora includes:

• Date, description, and amounts
• VAT treatment and calculations
• Supporting document attachments
• User and timestamp audit trail

Instant Report Generation

Generate audit-ready reports:

• Output VAT by period and category
• Input VAT claims with supplier details
• VAT return reconciliation
• Transaction listings

Document Management

• Attach invoices to transactions
• Digital storage of all documents
• Easy retrieval by date, supplier, or category
• Backup and security

VAT Return Archive

• Historical returns stored securely
• View what was filed for any period
• Compare returns to supporting data
• Identify discrepancies before audit

Reconciliation Tools

• Bank reconciliation linked to VAT
• Sales vs invoices reconciliation
• Purchases vs input VAT reconciliation
• Period-end checklists

Pre-Audit Self-Review Checklist

Before any audit, conduct your own review:

Output VAT Check

• [ ] All sales invoices issued and recorded
• [ ] Correct VAT rate applied to each sale
• [ ] Credit notes properly processed
• [ ] Export documentation complete
• [ ] Sales reconcile to bank receipts

Input VAT Check

• [ ] All purchase invoices have valid VAT numbers
• [ ] Input VAT only claimed on business expenses
• [ ] Apportionment correctly applied (if relevant)
• [ ] No personal expenses in business claims
• [ ] Import VAT supported by customs documents

Return Accuracy

• [ ] Returns filed on time
• [ ] Payments made on time
• [ ] Returns reconcile to accounting records
• [ ] Any amendments properly filed

Record Keeping

• [ ] All invoices available for audit period
• [ ] Sequential numbering intact
• [ ] Records organized and accessible
• [ ] Digital backup available

Frequently Asked Questions

How far back can NRS audit?

NRS can typically audit the last 6 years of VAT returns. Keep records for at least this period.

Can I refuse an audit?

No. NRS has legal authority to conduct audits. Refusal can result in penalties and enforcement action.

Do I need a tax professional for the audit?

While not required, professional representation is recommended, especially for complex audits or where significant issues are expected.

What if I find errors before the audit?

Consider voluntary disclosure. Proactively correcting errors typically results in lower penalties than errors discovered during audit.

Can the auditor access my bank accounts?

NRS can request bank statements and, with legal authority, can obtain information directly from banks.

Conclusion

A VAT audit doesn't have to be a nightmare. With proper preparation, organized records, and a clear understanding of the process, you can demonstrate your compliance and resolve any issues efficiently.

The key is maintaining good records throughout the year—not just when an audit is announced. Finora helps you build this discipline by automating record-keeping, ensuring document attachment, and providing instant audit-ready reports.

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