VAT records must be kept for six years although HMRC are only allowed to adjust returns going back four years plus the current period. If you have purchased land or buildings you may need to keep relevant documents for 20 years. But what VAT records do you need to keep?
1. You must keep a VAT account which is a record of how you have calculated the figures you submitted on each of your VAT returns. This account will show every transaction on which you have charged VAT and every transaction on which you have reclaimed VAT as well as those purchases which are reduced rate, zero rated or exempt from VAT. It must also include EC Sales and EC Acquisitions as well as reverse charge transactions.
2. You must have a copy of every VAT invoice issued by your business. Your VAT invoice must contain certain information. Read our blog on what you should include on your invoice.
3. You must have the original VAT invoice or receipt (or other evidence) for each purchase you have reclaimed VAT on as well as those which are zero-rated, exempt or reduced rate.
4. A copy of every credit note or other document which has altered the value of the supply.
Invoices, credit notes, receipts and other proof of purchase can be stored in paper or digital format. If you have lost an invoice or receipt or it is no longer readable you must obtain a duplicate. Your evidence must be easily accessible so that you can find specific documents when the VAT Inspector asks to see them.
I attended a VAT inspection where the VAT Inspector requested a fuel receipt which was more than 3 years old. Within minutes I was able to show him that receipt as well as every other one he requested. The VAT Inspector went away with no adjustments to be made to the VAT returns submitted.
If your VAT paperwork is tidy and organised the VAT Inspector is likely to need less time with you. If your paperwork is disorganised it will give the impression that your accounts and potentially your VAT records are also disorganised and perhaps inaccurate so they will spend longer going through everything with you.
I have attended eight inspections for clients we have worked with over the last 11 years and no-one has received an adjustment to their VAT return. So it really does pay to be organised.