Financial, Legal, & RealtyStrategy

How to Keep Good VAT Records

4 minute read

If you want a good financial standing, you need to keep the best VAT records. Here are some useful tips to help you keep your VAT records properly organized.

1. Keep Good Trading Records In Good Order

You must keep the exact records demanded by HMRC. Make sure your documents are properly organized so that you can find them easily in the event of an inspection. Don’t simply throw your receipts in a career bag and hope you will find them when necessary.

There’s no specific method of doing things but you should create a system where you can pinpoint every document such as receipts or invoices, especially those used to arrive at the figure on your VAT return. You can use Xero to record your sales and run your financial accounts.

2. Keep VAT Records At Hand

You should keep a separate folder, either paper or electronic that contains the following.

a) VAT registration certificate (a copy)

b) Copies with your correspondence with HMRC

c) Copies of your submitted VAT returns

3. Monitor Your VAT Account

Your VAT figures are often calculated by taking to the total VAT on sales less the VAT on purchases. The result is the total VAT liability owed to HMRC. If you have a small business with very few transactions, you can keep your records with an Excel spreadsheet.

You can manage your records with an accounting system like Xero that gives you a robust audit trail. You will also get some protection against any loss or destruction of records. You can take a look at all the debit and credit records for your VAT account.

You can also take a deeper look into the transactions that make up your VAT return whether you are operating an accrual or cash accounting for VAT or using the Flat Rate Scheme for your VAT transactions.

4. Create Sales Records

You need to keep all the records of your VAT invoices in your business showing the following:

a) Your VAT registration number

b) The VAT rate charged

c) The tax point (the date on which VAT was charged)

d) Description of the supply

e) Self-billing agreements where the customer prepares your sales invoices on your behalf (their actual purchase invoices)

f) Name, address and VAT number of the self-billing suppliers

g) Copies of all the self-billing agreements usually reviewed annually.

5. Keep Proper Records Of All Your Purchases

You must keep proper records of all receipts and invoices for your purchases which show the following.

a) The original VAT invoices or similar evidence of any VAT paid on purchases.

b) Export documents showing any overseas trading activities.

c) Credit notes or any other documents that alter the value of a supply.

HMRC can accept electronic copies of documents as evidence that shows the following information.

a) Your official business name on the invoice. Note that, you can only recover VAT on invoices issued to your business specifically. If you are a sole trader, the documents should show the VAT registered entity.

b) The VAT registration number used by the suppliers.

c) The VAT rate charged

d) The total value of VAT charged (check the exempt or zero rated parts of the invoice. Don’t assume that everything is vatable.

e) The tax point (the date when the VAT was charged)

Some receipts might not show your business name and the VAT details separately. If that happens, you need to calculate the VAT included in the final receipt value especially if the suppliers’ VAT number is showing on the receipt. If you are using Xero to run your financial accounts, you can use the receipt bank to send scanned or screenshots of PDF invoices and receipts in the system. 

6. A Few Things That Might Catch You Out

Other records you need include:

a) Items you are not supposed to claim on VAT such as business entertainment.

b) Goods you’re not able to take from stock for your own personal use or give away.

c) Bad debt write-offs and the proper VAT reclaim.

d) Any VAT claimed on mileage.

With TripCatcher, you can get the proper mileage records and the right VAT calculations to avoid any falsifications of records.

7. Proper Retention Of Records

You have a time limit of 4 years according to the HMRC to adjust your returns. You need to keep your VAT records for at least 6 years or 10 years, especially if you are using the VATMOSS service. For assets such as land and buildings, you should keep the documents for at least 20 years.

You can keep your Vat records on electronically on a bookkeeping software or on paper. Make sure the records are accurate, readable and complete. If you have misplaced a VAT invoice or it’s damaged and no longer legible, you can ask the supplier for a duplicate, often marked ‘duplicate’ in this case. You can request the HMRC to make the period shorter if you have a problem with storage.

It will come in handy in cases where your business has ceased to exist. If that happens, you need to make your application in writing. Also, if you are a sole proprietor, there are many other things you can be doing with your business such as sales or marketing. That’s why it’s prudent to hire an accountant or a bookkeeper for the best results. Make sure you vet everyone you consider for the job thoroughly to make sure they practice the best accounting practices and integrity when handling your records.

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