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What records do I need to keep under Making Tax Digital for VAT?

September 14, 2022
Making Tax Digital for Value Added Tax (MTD for VAT) is officially underway, with all VAT-registered business owners required to follow the rules set out by HM Revenue and Customs (HMRC).

In an effort to make it easier for small business owners and self-employed sole traders to keep on top of their taxes, MTD requires business owners to:

If you’re not sure where to start your VAT record keeping, you’re in the right place. We’ll be detailing the digital records you need to keep, how long to keep them for and how you can store your information.

What records do I need to keep under Making Tax Digital for VAT?

Under MTD for VAT, you must keep digital copies of the following records:
    Supplies made, or the VAT on the goods and services you supplySupplies received, or the VAT on goods and services you receiveTime of supply and value of supply (excluding VAT) for everything you buy and sellAny adjustments you make to a returnReverse charge transactions — where you record the VAT on both the sale price and the purchase price of goods and services you buyYour total daily gross takings if you’re using a retail schemeItems you can reclaim VAT on if you’re on the Flat Rate SchemeYour total sales, and the VAT on those sales, if you trade in gold and use the Gold Accounting Scheme
You also need to store digital copies of documents covering multiple transactions made on behalf of your business by:
    Volunteers for charity fundraisingThird party businessesEmployees in expenses for petty cash
As a VAT-registered business owner, you’ll also need to keep ahold of these records, too:
    Everything you buy and sell, including zero-rate, reduced rate and VAT exempt items Copies of all invoices issued All invoices you receive, both electronic and original, including VAT invoices Self-billing agreements, where the customer prepares your sales invoice and their purchase invoice on your behalf 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 General business records, such as bank statements, cash books, cheque stubs, paying-in slips and till rolls
You can find a full list of all business records you’re required to keep as a business owner over at GOV.UK.

Depending on your business, HMRC might ask you to keep additional records. For instance, if you’re a mobile phone supplier, HMRC might ask for additional records to identify supplies where VAT is most at risk of not being paid.

What is a VAT invoice?

In short, a VAT invoice is an invoice containing some of the information needed to complete a VAT return. Most commercial invoices should be able to provide this information.Only VAT-registered businesses can issue VAT invoices, and as a VAT-registered business owner you’ll need to issue a VAT invoice whenever you supply either items charged either a standard rate or reduced rate of VAT to another VAT-registered buyer.You’ll typically need to issue a VAT invoice within 30 days of supplying the good or service, and must keep a copy of every invoice you issue for your own VAT records.

What is a VAT account?

A VAT account is a separate record of the VAT you charge and the VAT you pay on purchases. The figures found in your VAT account can be used to complete your VAT return.The way a VAT account is set out can vary from business owner to business owner, but must show:
    Total VAT salesTotal VAT purchasesVAT owed to HMRCVAT to reclaim from HMRCIf your business uses the VAT Flat Rate Scheme, the flat rate percentage and turnover it applies to
If you’re a VAT-registered Northern Ireland business, you must also show the VAT on any EU purchases or sales.

How to keep digital VAT records

From the moment you register your business for VAT, you’ll need to start keeping a log of your business records.
To store these records, you’ll need either an MTD-compatible accounting software package in place — such as Ember — or spreadsheets that can connect to HMRC using MTD-compatible bridging software.

All records must be complete, up to date and allow you to calculate correctly the amount of VAT that you either have to pay or can claim from HMRC.

How long do I need to keep VAT records for?

To stay compliant under MTD for VAT, you’ll need to keep your VAT records for up to 6 years from the date they were created, or 10 years if you’re using the VAT One Stop Shop (OSS) or VAT Mini One Stop Shop (MOSS) scheme.

What happens if I don’t keep digital VAT records?

Unless your business is exempt from MTD for VAT rules, failure to keep digital records could land you a financial penalty.If you think you’ve been issued a fine unfairly, you can request a review of any penalties, or can make an appeal to an independent tax tribunal. You can also have your penalty cancelled or amended if you have what HMRC deems a reasonable excuse.
You can find more information on appealing against a VAT fine at GOV.UK.