VAT-registered businesses must:

• keep records of sales and purchases
• keep a separate summary of VAT called a VAT account
• issue correct VAT invoices

How to keep VAT records

You must keep VAT records for at least 6 years.

You can keep them on paper, electronically or as part of a software program (eg book-keeping software). Records must be accurate, complete and readable.

If you’ve lost a VAT invoice you can’t rely on a photocopy. Ask the supplier for a duplicate (marked 'duplicate').

HMRC can visit your business to inspect your record keeping and charge you a penalty if your records aren't in order.

Only VAT-registered businesses can issue VAT invoices and you must:

• issue and keep valid invoices (these can be paper or electronic)
• keep copies of all the invoices you issue even if you cancel them or produce one by mistake

You can't reclaim VAT using an invalid invoice, pro-forma invoice, statement or delivery note.

Valid invoices

You’ll use a full VAT invoice for most transactions. You can use:

• a modified invoice for retail supplies over £250
• a simplified invoice for retails supplies under £250 - and for other supplies from 1 January 2013

Include the following on your invoice, depending on which type you use.

(1) If items are charged at different VAT rates, then show this for each.

Exceptions

There are different invoice rules if you use a VAT Margin Scheme or trade internationally.

If you use the Cash Accounting Scheme you have to stamp an invoice with the amount of cash paid and the date.

Deadlines

Usually VAT invoices must be sent within 30 days of the date of supply or the date of payment (if you’re paid in advance).

Foreign currencies

You don’t have to show all amounts on your invoices in sterling. But if there’s any VAT due you must show this in sterling.

To convert to sterling you can:

• use the market selling rate at the time of supply
• use the European Central Bank’s rate - from 1 January 2013
• use HMRC’s period rates of exchange - the rates usually stay the same for each calendar month
• apply to HMRC to use a different method to account for the VAT

There are different rules if you use the Tour Operator’s Scheme.

Records you must keep include:

• copies of all invoices you send
• originals of all invoices you receive
• self-billing agreements (this is where the customer prepares the invoice)
• name, address and VAT number of any self-billing suppliers
• debit or credit notes
• import and export records
• records of items you can’t reclaim VAT on - eg business entertainment
• records of any goods you give away or take from stock for your private use
• records of all the zero-rated, reduced or VAT exempt items you buy or sell
• a VAT account

You must also keep general business records such as bank statements, cash books, cheque stubs, paying-in slips and till rolls.

If you use the Cash Accounting Scheme you must use these records to match them against your payment records and receipts.

Exceptions

Retailers don't have to issue VAT invoices unless the customer asks for one (keep a copy). Retailers can issue 'simplified invoices’ for supplies under £250.

Debit and credit notes

When you return goods to a supplier or a customer returns goods to you, the balance of payment can be settled with a credit or debit note.

Record these in your accounts and keep any original notes.

Credit and debit notes must show the same information as the VAT invoice and:

• why it was issued
• the total amount credited, excluding VAT
• the number and date of the original VAT invoice

You must keep a separate record of the VAT you charge and the VAT you pay on your purchases. This record is called a ‘VAT account’.

You use the figures in your VAT account to complete your VAT Return.

There aren’t any rules on what a VAT account should look like, but it must show:

• your total VAT sales
• your total VAT purchases
• the VAT you owe HM Revenue & Customs (HMRC)
• the VAT you can reclaim from HMRC
• if your business uses the VAT Flat Rate Scheme - the flat rate percentage and turnover it applies to
• the VAT on any EU acquisitions (purchases) or dispatches (sales)

Errors

If you’ve made an error in your VAT Return the VAT account must show:

• the date you discovered the error
• details about the error - eg how it happened, how you corrected it

You may also need to report the error to HMRC.

Bad debts

If you write off an invoice as a bad debt, you must keep a separate ‘VAT bad debt account’. The debt must be older than 6 months and for each bad debt you must show:

• total amount of VAT involved
• amount written off and any payments you’ve received
• the VAT you’re claiming on the debt
• the VAT period(s) you paid the VAT and are claiming the relief
• invoices details like date, customer name

You must keep this information for 4 years.

The tax point (or 'time of supply') for a transaction is the date the transaction takes place for VAT purposes.

You need to know this because, for example:

• it’s included on VAT invoices
• it tells you which VAT period the transaction belongs to
• it tells you which VAT Return to put the transaction on

The tax point can vary, but is usually the following.

The date of supply is:

• for goods - the date they're sent, collected or made available (eg installed in the customer's house)
• for services - the date the work is finished

Exceptions

If you use the VAT Cash Accounting Scheme, the tax point is always the date the payment is received.

There are different tax point rules for:

• certain trades - like barristers, building and construction
• where the supply is not a 'sale' – eg business items taken for personal use

Sometimes, one sale can give rise to 2 or more tax points - eg where the customer pays a deposit in advance, and then a final payment.