Keeping business records for VAT

If you are registered for VAT, you must keeping business records for VAT is vital.

You do not have to keep these records in a set way; just so your records:

  • are complete and up to date
  • allow you to work out correctly the amount of VAT you owe to HM Revenue & Customs (HMRC) or can reclaim from HMRC
  • are easily accessible when HMRC visits you – for example the figures you use to fill in your VAT Return must be easy to find

Business records you need to keep include the following:

  • annual accounts, including profit and loss accounts
  • bank statements and paying-in slips
  • cash books and other account books
  • orders and delivery notes
  • purchase and sales books
  • records of daily takings such as till rolls
  • relevant business correspondence

In addition to these business records, you need to keep VAT records and a VAT account as outlined in the following sections of this guide.

Keeping VAT records

In general, you must keep the following VAT records:

  • Records of all the standard-rated, reduced-rated, zero-rated and exempt goods and services that you buy or sell.
  • Copies of all sales invoices you issue. Except: if you are a retailer you do not have to keep copies of any less detailed VAT invoices for items under £250 including VAT – unless your customer has asked for a VAT invoice.
  • All purchase invoices for items you buy.
  • All credit notes and debit notes you receive.
  • Copies of all credit notes and debit notes you issue.
  • Any self-billing agreements you make as a supplier.
  • Copies of self-billing agreements you make as a customer and name, address and VAT registration number of the supplier.
  • Records of any goods you give away or take from stock for your private use including rate and amount of VAT.
  • Records of any goods or services bought for which you cannot reclaim the VAT, such as business entertainment.
  • Any documents dealing with special VAT treatment, such as reliefs or zero-rating by certificate.
  • Records of any goods you export.
  • Records of any taxable self-supplies you make – for example if you sell cars and you use one of your cars in stock for business purposes.
  • Any adjustments such as corrections to your accounts or amended VAT invoices.
  • A VAT account, as outlined in the following section of this guide.

Keeping a VAT account

A VAT account is the separate record you must keep of the VAT you charged on your sales and the VAT you paid on your purchases. It provides the link between your business records and your VAT Return. You need to add up the VAT in your sales and purchases records and then transfer these totals to your VAT account, using separate headings for VAT payable and VAT reclaimable/deductible.

You can keep your VAT account in whatever way suits your business best, as long as it includes the following information about the VAT that you:

  • owe on your sales
  • owe on acquisitions from other European Union (EU) countries
  • have to pay on behalf of your supplier under a reverse charge procedure
  • owe following a correction or error adjustment
  • can reclaim from your business purchases
  • can reclaim on acquisitions from other EU countries
  • are entitled to following a correction or error adjustment

You must also keep records of any adjustments that you make such as balancing payments if you use annual accounting for VAT.

You can use the information from your VAT account to complete your return at the end of each accounting period. You subtract your VAT reclaimable from your VAT payable, to gives you the net amount of VAT you pay to or reclaim from HMRC.

Unless you are using the cash accounting scheme, you must pay the VAT you have charged customers during the accounting period that relates to the return, even if they have not paid you.

For how long must VAT records be kept?

Generally you must keep all your business records that are relevant for VAT for at least six years. If this causes you serious problems in terms of storage or costs, then HMRC may allow you to keep some records for a shorter period.

Electronic and paper VAT records

As long as your VAT records meet the requirements laid down by HMRC, you can keep them in whatever format – paper and/or electronic – that you prefer. If you do keep all or part of your records on a computer or with a computer bureau, you must make sure that your records are easily accessible to you and to a VAT officer when they visit.

If you upgrade to a new computer system which is not compatible with your old system, you must make sure that the records held on your old system remain accessible for up to six years. If this is not possible, then you must make paper copies.

You can also keep your records on microfilm or microfiche, as long as you have received approval from HMRC and it is easy for VAT officers to view those records when they need to.

VAT and Intrastat records when trading with other EU countries

If you trade internationally, you must also keep business and VAT records including the following:

  • documentation relating to foreign sales or purchases of goods or services, imports or exports outside the European Union (EU) or selling or buying within the EU
  • VAT due on certain postal imports and imported services

If you trade with businesses in other EU countries and your EU trade is above certain levels, then you must keep similar VAT records for Intrastat.

Keeping records when you are using VAT accounting schemes

If you use one or more of the following VAT accounting schemes, you may need to keep different records:

  • Annual Accounting Scheme: you complete a return only once a year
  • Cash Accounting Scheme: you only pay VAT when your customers pay you
  • Flat Rate Scheme: you pay a fixed percentage of your turnover as VAT
  • retail schemes: if you sell direct to the public, you have several different options of accounting for VAT
  • second-hand goods scheme: you only need to account for VAT on the margin of goods you buy and sell

What happens if you don’t keep proper VAT records and accounts?

If you do not keep proper VAT records and accounts, then you could be fined.