5 Tips For Keeping Good VAT Records

Real Time VAT – 5 Tips For Keeping Good VAT Records

The following are our best tips to help you keep good VAT records. In the financial sense of the word, it is essential to have good housekeeping in order to keep your bookkeeping under control and keep good VAT records.


1. Keep your trading records organized

You are not only required to keep certain records for HMRC, but they also need to be ordered in such a way that you will be able to find certain documents in case there is ever an inspection. HMRC won’t be satisfied with simply receipts throw into a carrier bag.

Although the rules do not prescribe any set method, you should definitely have a system where you are able to pinpoint every document (receipt, invoice, etc.) that was used to arrive at all of the figures that appear on your VAT return.

Technical Tip:

Use Xero for recording your sales and running your accounts


2. Keep VAT records handy

Have a separate folder (paper or electronic) that contains:

  • Copies of your submitted VAT returns
  • Copies of any HMRC correpondence
  • VAT registration certificate

3. Monitor your VAT account

This is basically a record of how the figures on each of your VAT returns were arrived at:

xxxxx VAT on sales

xxxx Minus VAT on purchases

xxxx = amount of VAT that is owed to the HMRC

If you have a small business and not a lot of transactions then you can use a spreadsheet to keep your records. We recommend that you always use an accounting system like Xero to manage your records since the audit trail is more robust and offers some protection against destruction or accidental loss.

You will be able to view all of the credit and debit entries that are part of your VAT account and also be able to drill down into transactions making up your VAT return – and that it whether you are using accrual or cash accounting for VAT or using a scheme like Flat Rate. If you wish to make things easier in terms of reporting, real time VAT reports are possible.


4. Create your sales records

You are required to keep copies of all of the VAT invoices that your business issues that shows:

your VAT registration number

VAT rate that is charged

Tax point (date that VAT is counted as charged)

supply description

Self-billing agreements – where your sales invoice is prepared by the customer (their purchase invoice) for you:

VAT number, name and address of self-billing suppliers

copies of all of your self-billing agreements – review on an annual basis


5. Keep records of all purchasing activities

You are required to keep copies of all of your purchase invoices and receipts that have been issued to your business and show:

your original VAT invoices or any evidence that is similar of VAT that has been paid on your purchases

any export documents that relate to overseas trade

credit notes as well as any other documents that change a supply’s value.

HMRC accepts electronic copies of your documents as valid evidence if they contain the following information:

Your business name is printed on the invoice: VAT can only be recovered on invoices that have been specifically issued to your business (of if you are a sole trader the VAT registered entity)

The VAT registration number of the supplier

The VAT rate that was charged

The VAT value charged (search for exempt or zero rated elements in the invoice – you can’t just assume that the entire invoice is vatable supply)

– its tax point (date that VAT is counted as charged)

Receipts won’t usually have your business name on them or separately show the VAT. If the VAT number of the supplier is on the receipt then you will be able to calculate the VAT that has been included on the total receipt value.

At the time this was written, the VAT rate is currently 20%’ this make the VAT fraction £X / 6 (Which should not be confused with £X / 5) since that is inclusive of VAT.

For instance, if there is a £12 receipt value, then £12 / 6 = £2 VAT (£10 + £2 VAT)

Extra Help

This article was created in collobration with the cool peeps at VAT Global.
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