What the rules say about VAT record keeping

Some of the traders and businesses using the business consultants in London of London Registrars may have been informed during a visit by HMRC that their VAT records were in need of improvement if they were to avoid a fine. Such business owners may have wondered about the legitimacy of such advice, and if so, what steps they would need to take in accordance with the rules.

The last few years have seen HMRC particularly emphasise to businesses the importance of maintaining appropriate records. Since 2011, this awareness drive has been accompanied by a special programme for checking the records of firms. For those organisations with records that fail to pass muster, there is the threat of a fine of up to £3,000, levied under the rules for direct tax (income and corporation tax) self-assessment. However, in relation to VAT, a separate record-keeping penalty of up to £500 can be imposed.

As far as direct taxes are concerned, your organisation's general accounting records will suffice for HMRC. However, VAT brings with it greater record-keeping demands. Not only must you keep your usual records, but you will also be expected to maintain a VAT account, which is broadly a record of how you arrived at the figures for each VAT return.

Copies of VAT invoices issued by your business, original VAT invoices or similar evidence of VAT paid on purchases, export documents relating to overseas trade and credit notes and other documents that alter the value of a supply must also be kept. Although all of these documents are able to be converted and stored in digital format, such as by scanning and saving documents received or by creating PDFs, you must obtain HMRC's permission prior to doing so.

Keeping the records HMRC wants is not the sole requirement for businesses, which must also order them so that any required document can be found in the event of inspection. This makes it insufficient simply to throw receipts into carrier bags. Invoices issued by your company must also show certain information, including your registration number, the rate of VAT charged and the tax point, which is the date on which VAT counts as charged.

The best-informed business consultants in London would also advise their clients of the need to keep VAT records for what is usually six years. This is despite the time limit allowed to HMRC to adjust return forms being four years plus the current return period. Documents relating to land and buildings may even need to be retained for 20 years. Businesses that struggle with the storage of such documents can request that HMRC shortens this period, but must make their application in writing.

By following the aforementioned rules, businesses should avoid problems with HMRC in regard to their record-keeping. However, if for any reason the Revenue does take exception, you can usually expect a warning - with no retrospective effect - to be issued prior to any fine.

Editor’s Note: London Registrars (http://www.london-registrars.co.uk) are represented by the search engine advertising and digital marketing specialists Jumping Spider Media. Email: info@jumpingspidermedia.co.uk or call: +44 (0)20 3070 1959 / +34 952 783 637.