Charge, reclaim and record VAT
Keeping VAT records
HM Revenue and Customs (HMRC) may check your records to make sure you’re paying the right amount of tax.
Records you must keep
You must keep a record of the following:
- everything you buy and sell (including zero-rated, reduced and VAT exempt items)
- copies of all invoices you issue
- all invoices you receive (original or electronic copies)
- self-billing agreements (where the customer prepares the invoice)
- the name, address and VAT number of any self-billing suppliers
- debit or credit notes
- any goods you give away or take from stock for your private use
Keep general business records such as bank statements, cash books, cheque stubs, paying-in slips and till rolls.
Find out what records you must keep when you export goods.
Records you must keep digitally
You must keep some VAT records digitally (also known as an ‘electronic account’) - unless you’re exempt from following ‘Making Tax Digital for VAT’ rules.
Keep digital records of the following:
- the VAT on goods and services you supply (supplies made)
- the VAT on goods and services you receive (supplies received)
- the ‘time of supply’ and ‘value of supply’ (value excluding VAT) for everything you buy and sell
- any adjustments you make to a return
- reverse charge transactions - where you record the VAT on both the sale price and the purchase price of goods and services you buy
- any VAT accounting schemes you use
- your total daily gross takings if you use a retail scheme
- items you can reclaim VAT on if you use the Flat Rate Scheme
- your total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme
Keep digital copies of documents that cover multiple transactions made on behalf of your business by:
- volunteers for charity fundraising
- a third party business
- employees for expenses in petty cash
How to keep digital records
Use a compatible software package or other software (like spreadsheets) that connect to HM Revenue and Customs (HMRC) systems.
If you have recently registered for VAT, you should wait for HMRC to confirm your registration before downloading compatible software. Keep paper version of the records while you wait.
Linking your records digitally
If you use more than one software package or product to keep records and submit returns, you need to link them. This must be a digital link. You cannot manually transfer this data, or ‘copy and paste’, between software.
Some ways you can link your software include:
- using formulas to link cells in spreadsheets
- emailing records
- putting records on a portable device to give to your agent
- importing and exporting XML and CSV files
- downloading and uploading files
When you’re exempt from keeping digital records
You must follow the rules for ‘Making Tax Digital for VAT’ by keeping some records digitally, unless:
- your business uses the VAT GIANT service, for example if you’re a government department or an NHS Trust
- you’re eligible for an exemption
How long you must keep records
Begin keeping records when you register for VAT. You must keep VAT records for at least 6 years (or 10 years if you are using the VAT One Stop Shop (OSS) scheme or used the VAT Mini One Stop Shop (MOSS) scheme).
VAT invoices
Only VAT-registered businesses can issue VAT invoices. If you’re VAT-registered, you must:
- issue valid invoices
- keep copies of all the sales invoices you issue even if you cancel them or produce one by mistake
- keep all purchase invoices for items you buy
Find out what to include in a valid VAT invoice.
You cannot reclaim VAT using an invalid invoice, a pro-forma invoice, a statement or a delivery note.
If a supplier issues you an incorrect invoice
If a supplier issues you an invoice where the amount to pay is wrong, you need to ask the supplier to correct it and issue a new invoice.
If you pay less than the amount due on an invoice, you can only reclaim the VAT on the amount paid - not what is on the invoice.
You cannot claim more VAT than is shown on a valid VAT invoice.
VAT account
You must keep a record of the VAT you charge on sales and the VAT you pay on your purchases. This is called a ‘VAT account’.
You use the figures in your VAT account to complete your VAT return.
There are not 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 and 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
If you are a Northern Ireland business registered for VAT, you must also show the VAT on any EU purchases or sales.
If you’ve made an error on your VAT return, the VAT account must show when you discovered the error and how you corrected it.
Returns and exchanges
When you return goods to a supplier or a customer returns goods to you, settle the balance of payment by issuing either a:
- replacement invoice
- credit or debit note
Record these in your accounts and keep any original notes.
If you exchange the goods for goods of the same value you do not need to issue a new VAT invoice.
Your credit or debit note must include the:
- same information as the VAT invoice
- reason why it was issued
- total amount credited, excluding VAT
- number and date of the original VAT invoice
Bad debts
If a customer does not pay what they owe for goods or services, you can write off the invoice as a ‘bad debt’. You may be able to claim relief from VAT for bad debts. Do this in your VAT Return.
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 when you make your claim.
You must claim a refund from HMRC within 4 years and 6 months of the date the payment was due or the date of supply (whichever was later).
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
- invoice details like the date and the customer’s name
You must keep this information for 4 years after the claim is made, or 10 years if you used the VAT MOSS.
Time of supply or tax point
You need to know a transaction’s time of supply (or ‘tax point’). This is the date the transaction takes place for tax purposes.
The tax point tells you which VAT period the transaction belongs to, and which return to put it on.
The tax point can vary, but it’s usually the following:
| Situation | Tax point |
|---|---|
| No invoice needed | Date of supply |
| VAT invoice issued | Date of invoice |
| VAT invoice issued 15 days or more after the date of supply | Date the supply took place |
| Payment or invoice issued in advance of supply | Date of payment or invoice (whichever is earlier) |
The date of supply is:
- for goods - the date they’re sent, collected or made available (for example, when they’re installed in the customer’s house)
- for services - the date the work is finished
Exceptions to the tax point rule
If you use the VAT Cash Accounting Scheme, the tax point is always the date the payment is received.
Read the guidance on how to work out the tax point in other situations. For example, there are different tax point rules for:
- certain trades - like barristers, building and construction
- where the supply is not a ‘sale’ – for example business items taken for personal use
Sometimes, one sale can give rise to 2 or more tax points - for example, where the customer pays a deposit in advance, and then a final payment.