Keeping proper VAT records ensures you have a record of all the output tax (ie VAT on sales) you have charged, as well as the input tax (ie VAT on purchases) you have paid.
As well as ensuring you comply with your legal obligations, maintaining accurate, current VAT records makes it easy to complete your VAT return and get the VAT you paid back.
Basic VAT records
You must keep complete, up-to-date VAT records that enable you to work out the correct amount of VAT to include in your VAT returns. You should keep your VAT records for at least six years, because you will need to show them to HM Revenue & Customs if or when asked.
Ordinary business records can be the basis for your VAT records. You need records of sales and purchases (and any adjustments such as credit notes) including details of how much VAT your business charged or paid. If you trade internationally, you need records of your imports and exports with all overseas territories, including the European Union. Your VAT records also must show details of any supplies you have given away or taken for personal use.
Your VAT records should include the VAT invoices you have been given for purchases — with details of the input tax you have paid — and copies of your sales invoices. Your records will also need to include a VAT account, showing how total input tax and output tax has been worked out to include in your VAT returns.
For more information on VAT records, read HMRC's guide 'Accounts and Records for your VAT'.
Output tax and VAT invoices
In general, you must issue a VAT invoice to any VAT-registered customer when you sell standard-rate or reduced-rate goods or services. Retailers do not need to issue a VAT invoice unless asked for one, and can issue simplified VAT invoices for small sales.
VAT invoices must include:
- your business name and address
- VAT registration number
- the customer’s name and address
- details of the goods sold
- the net cost (excluding VAT)
- the VAT charged
- the date of issue
- the tax point - the date used for VAT accounting - if this is different to the date of issue
It is also good practice to include an invoice number but this is not essential.
You should ensure that your systems and software produce proper VAT invoices. Good accounting software should offer all the VAT features you are likely to need. It may be worth taking advice: there can be special requirements in particular industries or if you want to use one of the VAT accounting schemes.
You can only reclaim the input tax you have paid if you have a valid VAT invoice and you purchased the supplies for business use.
If you sell some goods or services that are exempt from VAT, you will not usually be able to reclaim all the input tax you have paid. Instead, you reclaim only the share of the input tax that relates to your standard or zero-rated sales.
You cannot reclaim input tax on any goods and services purchased for personal use. Other exclusions include input tax on company cars (unless these are used only for business), business entertainment and assets acquired when you purchase a business.
You must get your VAT records right — mistakes can lead to tax penalties, being unable to reclaim some of the VAT you have paid or even being liable for output tax you should have charged your customers but didn’t. If in doubt, take advice to make sure you put the right VAT systems in place.
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