How long do I need to keep VAT records for?

In the UK, VAT records must be kept for at least six years (or ten years if the trader uses the HMRC VAT mini-one-stop-shop (VAT MOSS) service. VAT records may be kept on paper, electronically or as part of a software program (e.g. book-keeping software) – but whichever method is used, the records must be accurate, complete and readable. HMRC can visit businesses to inspect record-keeping and impose penalties if the records are not in order.

Making Tax Digital for VAT: A Simplified Guide

What is Making Tax Digital for VAT?

Making Tax Digital (MTD) for VAT is a government initiative that requires businesses to keep digital records and file VAT returns through software. This change aims to make the tax system more efficient and accurate.

Why is MTD Important for Your Business?

• Accuracy: Digital records are less prone to errors, ensuring accurate VAT calculations.
• Efficiency: Digital record-keeping and filing can save time and reduce administrative burdens.
• Compliance: MTD helps businesses stay compliant with VAT regulations and avoid penalties.

What Records Must You Keep Digitally?

To comply with MTD for VAT, you must keep digital records of:

• Sales:
  • Invoices: These should include the supply date, VAT amount, and a unique reference number.
  • Cash sales: You must keep a digital record of each cash sale, including the date, amount, and VAT amount.
• Purchases:
• Invoices: These should include the supplier’s VAT number, the supply date, and the VAT amount.
• Purchase ledger: You must maintain a digital purchase ledger to record all purchases, including those exempt from VAT.

How to Keep Digital Records

You can keep digital records using various methods:

• Accounting software: Many accounting software packages are MTD-compatible and can help you keep accurate records and file VAT returns.
• Spreadsheets: You can use spreadsheets to record sales and purchases, but ensure they are kept digitally.
• Dedicated bookkeeping software: This software is specifically designed for small businesses and can help you manage your finances and comply with MTD regulations.

Key Tax Points to Remember

• Tax Point: This is the date on which VAT becomes chargeable. Understanding tax point rules is crucial for accurate VAT calculations.
• Input Tax: This is the VAT you pay on goods and services you buy for your business.
• Output Tax: This is the VAT you charge on the goods and services you sell.
• VAT Returns: You must file VAT returns periodically, declaring your total input tax and output tax.

Holding Onto Your VAT Records

• Retention Period: You must keep your VAT records for at least six years after the end of the VAT period to which they relate.
• Record Keeping: Ensure you keep accurate records of all sales, purchases, and VAT calculations.
• Storage: You can store your records digitally or on paper, but they must be easily accessible for inspection by HMRC.

By understanding MTD for VAT and keeping accurate digital records, you can ensure your business complies with tax regulations and minimizes the risk of penalties.

FAQs About Holding Onto VAT Records

1. How long should I keep my VAT records?

You must keep your VAT records for at least six years after the end of the VAT period to which they relate. This means that if you file a VAT return for the period 1st January to 31st March 2024, you must keep your records until 31st March 2030. It is a digital record keeping requirement of HM Revenue and VAT legislation.

2. What kind of invoice VAT records should I keep?

You must keep records of all your sales, purchases, and VAT calculations. This includes:

• Sales invoices: These should include the date of supply, the amount of the sale, and the VAT amount of the individual invoice.
• Purchase invoices: These should include the supplier’s VAT number, the date of supply, the amount of the purchase, and the VAT amount.
• Cash sales: You must keep a record of the date of the cash transaction, the amount of the sale, and the VAT amount.
• Bank statements: These can be used to verify your income and expenditure.

3. How should I store my VAT records?

You can store your VAT records in any format, as long as they are accessible and can be easily understood. This could include paper records, digital records, or a combination of both.

4. What happens if I don’t keep accurate VAT records?

If you don’t keep accurate VAT records, HMRC may challenge your VAT returns and could ask you to pay additional tax, interest, and penalties. In severe cases, HMRC may also take legal action. Your book keeper should digitally record transactions so you can claim VAT.

5. Can I use a VAT spreadsheet to keep my records?

Yes, you can use a VAT spreadsheet to keep your records. However, you must ensure that your spreadsheet is accurate and up-to-date. You should also keep a backup of your spreadsheet in case it is lost or damaged.