Finance April 29, 2016 Last updated September 18th, 2018 707 Reads share

A Complete Account of VAT Record Keeping

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According to HMRC, businesses who have opted for

How the VAT Records should be kept

The seller should keep his/her records of VAT for a minimum of 6 years. If s/he uses VAT MOSS, the records should be kept for a minimum of 10 years. VAT records can be kept electronically as a part of any software program or on paper as well. These records should be authentic, readable as well as complete. In case a VAT invoice is lost or damaged beyond recognition, you can request the supplier for one duplicate invoice. You should also mark “duplicate” on that specific invoice copy.

Please note that HMRC may visit a business for inspection of its VAT records. If the records are not in order, a penalty can be levied on the same business as well.

VAT Invoices in a Nutshell

Only businesses that have a valid VAT-registration can issue invoices. The seller should:

  • issue as well as keep authentic invoices (in paper or in soft copies).
  • retain copies of each and every sale invoice issues by the seller. Even if the invoice is canceled or is produced by mistake, the seller needs to retain the same invoice for future references.
  • retain each and every purchase invoice as well.

All such retentions should be done for a period of 6 years or 10 in case of VAT MOSS.

A point to be noted is that VAT can’t be reclaimed with the use of an invalid invoice, preliminary (proforma) invoice, delivery note.

Attributes of an authentic VAT invoice

For most business dealings, the seller should utilize a complete VAT invoice. The seller should use:

  • a customized invoice for retail dealings over £250.
  • an uncomplicated invoice for any retail dealing under £250.

The following information can be included in your invoice as per requirements.

Invoice Information Full Invoice Customized Invoice Simplified Invoice
Unique invoice number
Business name cum address
VAT number
Date
Tax point
Customer’s name and address
Goods or Service description
VAT-exclusive amount
VAT amount
VAT-exclusive price/ item
Quantity
Discount rate per item
VAT rate charged on each item
VAT-inclusive amount

What are the VAT records?

The VAT records consist of:

  • all invoice copies issued by the seller.
  • all original/electronic copies received by the seller.
  • self-billing consents (in such consents, the customer himself/herself prepares the specific invoice).
  • self-billing supplier’s name, address as well as VAT number.
  • notes on debit/credit.
  • records on import and export goods.
  • records of goods for which reclamation of VAT isn’t possible that include items in relation to business entertainment.
  • records of specific items taken from the stock for any private use.
  • records of each and every zero, reduced or exempted VAT-rated items bought or sold by the seller.

For using VAT MOSS, additional records need to be maintained.

What is the VAT Account?

The seller needs to retain a distinct record of the VAT charged by him as well as paid by him on any purchases. Such record is known as a “VAT account”. Such a VAT account can be used to file a VAT return.

A VAT account should show:

  • a seller’s complete VAT sales.
  • a seller’s complete VAT purchases.
  • VAT owed by the seller to HMRC.
  • VAT that can be reclaimed from HMRC.
  • the percentage of the flat rate and the turnover over which the same percentage applies (if the business indulges in the Flat Rate VAT scheme).
  • VAT levied on EU purchases or sales, if the business is involved in such dealings.

In case there’s any mistake in the VAT return, these things should be shown in the VAT account:

  • the date on which the error is discovered.
  • error details and the way through which it’s corrected.

The error can also be reported to HMRC.

What is a Tax Point?

The tax point is also known as “time of supply”. It’s the date when the transaction occurs due to VAT purposes. The time of supply should be known to a seller or a consumer because:

  • it’s generally included on most VAT invoices.
  • it informs the individual of the VAT period of the specific transaction.
  • it can inform the specific VAT return over which the transaction is to be put.

VAT Inspection and Record-keeping

HMRC may visit certain businesses for VAT inspection. The possible causes are:

  • The business fails to submit its timely VAT returns.
  • HMRC receives certain concerning information related to the business.
  • HMRC feels that certain businesses lie in the category of their risk factor. These businesses under the risk factor don’t indulge in a proper dealing of VAT. If HMRC presumes that your business also poses the same risk, you can expect a VAT inspection from HMRC.
  • HMRC decides that a business is having an abnormal dealing pattern. It means that the purchase, sales ratio is uncommon on one hand and on the other, there’s an abrupt drop in VAT as declared by the business.
  • The business has a history of late payment of VAT and defaulter penalties.
  • Abnormal reclamation of VAT is made by the business.

A decent and orderly VAT Records will be immensely beneficial because the same records serve as a proof of your business dealings and may solve any dispute (if any) with HMRC on their VAT inspection.

Keeping an orderly VAT record can save a business from a lot of hassle from the point of view of its VAT returns and it also allows the business to keep a tab on its income and expenditure. It’s, therefore, advisable to keep a systematic record of VAT to ensure that the business dealings happen in a legal as well as in a smooth manner.

Images: ” VAT – Value Added Tax – White Word on Red Puzzles on White Background. 3D Illustration. /Shutterstock.com

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Allan Lloyd

Allan Lloyd

Allan has worked extensively with Companies House and HM revenue and Customs in the field of company formation, covering private companies limited by shares, limited by guarantee (non-profits), Limited Liability Partnerships (LLPs), Right to Manage Companies (RTM). Additionally, Allan specializes in VAT registration services, a range of company secretarial procedures and other related advisory services. He also imparts essential, accurate and recent information to budding entrepreneurs regarding the fundamentals and best practices for incorporating their business ideas, through his articles that he formulates after careful research and analysis.

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