How to keep VAT records

If you are VAT-registered:

  • You have to record the VAT on all purchases and sales your business makes.
  • You also need to keep a VAT account, which shows how much VAT you owe HMRC, or vice versa.
  • You are responsible for making sure all records are accurate, complete and up-to-date.
  • They also need to be easily accessible for a VAT inspection - HMRC should be able to see where you got the figures on your VAT return from.
  • You can keep records on paper or on a computer, but for the VAT account a computer spreadsheet will generally be much easier to maintain as it does the calculations for you.
  • There is no official way to keep your records - use the method that suits you best.

Checklist: what to keep a record of

You need to keep all the following for your VAT records:

  • A VAT account (see below).
  • Copies of all sales invoices you issue.
    • If you're a retailer, you only need to keep copies for items worth more than £250, or if the customer has specifically asked for a VAT receipt.
  • All invoices for items or services you buy (originals, not copies).
  • Copies of all credit and debit notes you issue.
  • All credit notes and debit notes you receive from other customers and businesses (originals, not copies).
  • Records of things you've bought which you can't reclaim VAT for, such as business entertainment.
  • All documents relating to VAT-relief or zero-rating (originals).
  • Records of anything you export.
  • Any corrections you make to your VAT accounts or invoices.
  • Any self-billing agreements you make as a supplier, and copies of any self-billing agreements you make as a customer.
  • Records of any items you give to or take from the business for priVATe use, including VAT rate.

The VAT account

  • Your VAT account needs to record all items or services that you buy or sell, their price and the VAT charged on them.
  • Unless you're very comfortable adding up pages and pages of a book, it's best to keep these figures in a spreadsheet.
  • Show things you've bought in three columns: net price, VAT charged and total for each item. Then either another spreadsheet or separate from the other columns for what you've sold, again showing net price, VAT charged and total for each item in separate columns.
  • Your VAT account also keeps the running total of VAT you've paid, VAT you've charged, and your resulting VAT balance.
  • Use the sum total function on the spreadsheet to keep running totals of the total VAT payable (the total you charged) and the total VAT claimable (the total you paid).
  • You can then deduct the claimable from the payable to see the total you owe HMRC - or, if the result is negative, what they owe you. This corresponds with the figures on your VAT return.
  • You also need to show anything you're paying on behalf of your suppliers or vice versa and any corrections and errors made.
  • If you use an annual accounting system, you also need to record balancing payments.

FAQ

How long do I need to keep VAT records for?
Six years. If you're using a computer, print out paper copies of your records at the end of each year in case something happens to your computer.

What if my customers owe me money? Do I still have to pay VAT on that?
Yes, unless you're using the cash accounting scheme.

What happens when you have a VAT inspection?
HMRC will call to give you notice of when they're coming and what you need to show. You need to make sure all the records explained above are completely up-to-date.

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