Our top tips for keeping good VAT records
Good housekeeping in the ‘financial’ sense is essential for keeping on top of your bookkeeping and VAT records.
1. Keeping trading records in good order
|Not only must you keep the records HMRC wants, but they must be ordered in a way that the document can be found in the event of an inspection. Throwing receipts into carrier bags won’t cut it with HMRC.
While there’s no method set by the rules, you should have a system that allows you to pinpoint each document (invoice, receipt, etc.) used to arrive at each figure on the VAT return
2. Keep VAT records to hand
|Keep a separate folder (electronic or paper) containing:
3. Monitor your VAT account
|Broadly this is a record of how the figures on each VAT return are arrived at:
If your business is small and your transactions few – you can keep your records in a spreadsheet. We would always recommend managing your records in an accounting system such as Xero where you have a more robust audit trail and some protection against accidental loss or destruction.
Here you will be able to look at all the debit and credit entries that make up your VAT account and ‘drill down’ into the transactions that make up your VAT return – whether you are cash or accrual accounting for VAT or operating a VAT scheme such as the Flat Rate Scheme.
4. Create sales records
|You must keep copies of all VAT invoices issued by your business showing:
Self-billing agreements – this is where the customer prepares your sales invoice (their purchase invoice) on your behalf:
5. Keep records of all your purchasing activities
|You must keep copies of all receipts and purchase invoices issued to your business showing:
HMRC will accept electronic copies of documents as evidence, so long as the following information is visible:
Receipts will not show your business name and often don’t show the VAT separately. You can calculate the VAT included in the total receipt value if the suppliers’ VAT number is shown on the receipt.
As at the time of writing. the VAT rate is 20%; making the VAT Fraction £X / 6 (Not to be confused with £X / 5) as this is inclusive of VAT
For example, if the receipt value is £12, then £12 / 6 = £2 VAT (£10 + £2 VAT)
6. Stuff that might catch you out
|You will also need to keep records of:
7. Record retention
|Oddly, while the time limit allowed to HMRC to adjust return forms is four years plus the current return period, you must usually keep VAT records for six years (or 10 years if you use the VATMOSS service).
Tip: In the case of land and buildings you might need to keep documents for 20 years.
You can keep VAT records on paper, electronically or as part of a software program (e.g. book-keeping software). Records must be accurate, complete and readable.
If you have lost a VAT invoice or it is damaged and no longer readable, ask the supplier for a duplicate (marked ‘duplicate’).
You can ask HMRC to shorten the period if storage is a problem for you. This might be the case if and when your business ceases to trade. Your application must be in writing
And finally, if quite frankly you have better things to do with your time such as making sales and running your business than do the admin yourself – consider outsourcing it to an accountant or bookkeeper!
Your admin nightmare is our day job!