What should I do when VAT adds up differently to my supplier's invoice?

Sometimes when I order a product, the VAT calculation comes out slightly different when I enter the data into my accounting package. Typically the difference is 1p but sometimes it is more. This seems to be due to rounding errors. Typically this happens when the supplier takes the invoice total and calculates the VAT from the invoice total in a single step at the end. My accounting package calculates VAT on a line-by-line basis then sums the VAT column.

So I end up with an invoice in my accounting system that differs from the actual suppliers invoice.

How should I cope with this situation to keep the VAT man happy? Should I enter a 1p 'correction' in my accounting system? Should I manually override the VAT amount on one of the line items? Which one?

The short answer is that in reality it probably doesn't matter. In my experience HMRC are unlikely to argue small 1 pence rounding errors, and they are certainly very common. They are usually pretty prudent in areas such as this.

That being said, personally I believe it is safer that the VAT element figures comprising your VAT return reflect those per the invoices you are reclaiming against, as ultimately this is what makes up your liabilty or reclaim. This just avoids any possible queries should you be subjected to an inspection.

Therefore, I would say you need to record in your system the VAT element as per the suppliers invoice, even if you believe they have rounded incorrectly. Usually this means manually adjusting the automatically calculated VAT element when you post the invoice, and if this effects the Gross invoice total such that it is different to that of the invoice, adjusting the net element accordingly.