VAT records must be kept for six years although HMRC are only allowed to adjust returns going back four years plus the current period. However 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?
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.
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.
If you are a retailer you do not have to issue an invoice for sales under £250 unless the customer asks for one.
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. If it is illegibile or lost you should ask for a duplicate. You cannot reclaim VAT on a proforma invoice, a delivery note or a statement.
You must have a copy of every credit note or other document which has altered the value of the supply.
- Cheque book stubs (completed with the payment information,
- Paying in slips
- Bank and credit card statements
- Till receipts
Invoices, credit notes, receipts and other proof of purchase can be stored in paper or digital format. Your evidence must be easily accessible so that you can find specific documents when the VAT Inspector asks to see them.
Keep your paperwork tidy and organised so that you can find what you need. If you have a VAT inspection the VAT Inspector is likely to spend less time asking you to produce receipts if he or she can see that you can find them easily. If your paperwork is disorganised it will give the impression that your VAT accounts may be inaccurate so they will spend longer going through everything with you.
Accounts software makes maintaining and producing a VAT account much more straightforward but, as with anything, the return you produce is only as good as the information you enter. Know what purchases you can claim VAT on, which are zero rated and which are exempt. Whilst some transactions will have VAT on it doesn't mean that your business can claim the VAT. And remember not to claim VAT on any items which are Outside the Scope of VAT - VAT payments, tax payments, wages payments, etc. I have seen it done!