Female-led startup employees brainstorming around a table | What is a VAT receipt?

Contents

  1. 1. What is a VAT receipt?
  2. 2. VAT invoice requirements
  3. 3. VAT record keeping: best practices
  4. 4. How should I store VAT receipts?

What is a VAT receipt?

September 22, 2022
Chances are the last transaction you made features a VAT charge. You only need to take a closer look at your receipt to spot it.VAT is part of our daily lives, both as consumers and business owners. As a business owner, you’ve probably been advised to keep hold of your VAT receipts. And rightfully so — keeping digital VAT records is a legal requirement for VAT-registered business owners.This isn’t to bury you in piles of unnecessary paperwork. For companies looking to claim back the VAT on goods and services they’ve bought for the business, they must supply valid VAT receipts. That’s why it’s important to understand what a valid VAT receipt looks like, as well as the best practices for record keeping.With this in mind, read on for an overview of VAT receipts. One that’s relatively simple to get your head around.

What is a VAT receipt?

VAT receipts show what you’ve bought from a supplier and how much VAT you’ve paid.Under UK law, any VAT-registered business must provide their customers with a VAT receipt. That means you’re legally allowed to request one, as are your customers.It’s also important to store your VAT receipts safely, as you’ll need them when submitting your VAT return. These will evidence the total amount of VAT you’ve paid, and make sure that your tax bill or tax rebate is as accurate as possible.For some transactions, such as telephone calls and commercial tolls of £25 or less, you’ll be able to claim back VAT without a receipt.

What is VAT?

To better understand why you might request a VAT receipt, we'll dive into what VAT is and how it works.
VAT, otherwise known as ‘Value Added Tax’, is a consumer tax applied to anything classified as a taxable supply, such as the sales of goods, services and assets.

If your suppliers or manufacturers are VAT-registered, you’d have been charged input VAT on every purchase you’ve made from them.
If your business is VAT-registered — whether that’s because you’ve registered voluntarily, or have surpassed the £85,000 VAT registration threshold — you’ll need to charge your customers VAT on the items you sell, known as output VAT.

The idea is that eventually you break even, reclaiming the input tax paid towards your supplier from the output tax paid by your consumers. When filing your VAT return, you’ll need to keep track of these figures, with the difference between your output VAT and input VAT determining either what your final VAT bill looks like, or how much you can expect in a VAT refund.

Diagram showing how input VAT and output VAT work
Keep in mind that some goods and services are not charged VAT, yet depending on the item may need to be included in your VAT return. For the differences between zero-rated goods, out-of-scope goods and VAT exempt goods, head over to our guide to VAT exemption.

What’s the difference between a VAT receipt and a VAT invoice?

Broadly speaking, a VAT invoice is the same thing as a VAT receipt, yet VAT invoices tend to be used to record business expenses more frequently than VAT receipts.For example, if you were to buy a laptop for £500 as an individual for personal use, you’d be issued a receipt from the till which would state the rate of VAT you’d paid. However, if you’d spent the same amount on a laptop for business use, you’d be issued a VAT invoice, too.There are slightly different rules when it comes to retailers selling goods for under £250. In this instance, a retailer can issue a simplified VAT invoice, and will only need to issue a full VAT invoice if the customer requests one.

VAT invoice requirements

To successfully reclaim VAT, you’ll have to present the original purchase receipt to HM Revenue and Customs (HMRC), otherwise known as the VAT invoice.A valid VAT receipt will include the following details:
    VAT registration number of seller A list of the purchased goods Unique invoice number Business address of both the buyer and seller Tax date (date of supply) Business name of both the buyer and seller Receipt issuance date
If any of this information is missing or incorrect, you might not be able to claim back VAT. Further examples of VAT receipts that aren’t valid include: delivery notes, letters or emails.
Take some time to check over your invoices to save yourself a future headache. Or, get in touch with our accountants instead — we’ll happily take the weight off your shoulders.

What does a simplified VAT receipt look like?

Not every VAT receipt needs to include all of the above details. If requested, retailers can issue simplified VAT receipt for sales under £250 including VAT.Simplified VAT receipts are shorter, but they still provide the customer with everything that is legally required.A simplified VAT receipt must show:
    Supplier name and business address Supplier VAT registration number Date of supply, or the tax point A description of the goods or services supplied
If the sale includes items charged at different VAT rates, then the simplified VAT receipt must also show the VAT rate applicable to each different item, as well as the total price including VAT. VAT exempt supplies, such as postage stamps, must not be included on simplified invoices or modified VAT invoices.

What if I lose my VAT receipt?

It’s easy to lose VAT receipts, especially if you’ve just bought something small or from a local corner shop.HMRC will accept alternative evidence if you have lost a few VAT receipts of small value (i.e. the odd £10). In these instances, you’ll need to support your claim with alternative information, e.g. a bank statement or credit card, as proof of payment.If you’re losing VAT receipts a lot, though, then you should practice some good record-keeping. Read on — we’ve got you covered.

VAT record keeping: best practices

Keeping hold of valid VAT receipts means that you’ll be able to prove how much VAT you’ve paid. And how much you’ve legally claimed back on your VAT returns, in case of inspection.Every VAT-registered business must keep a VAT account. This will be a huge help when it comes to filling out your VAT return.You can keep the VAT account whichever way suits your business best, but here’s the information you’ll need to track:
    Output tax owed on sales Output tax owed on acquisitions made before 1 January 2020 (for those registered in Great Britain) Tax you’re required to pay on behalf of a supplier under a VAT reverse charge procedure Tax that needs to be paid following a correction or error adjustment Any other adjustment required by the VAT rules
💡Did you know you can generate, review and submit your VAT Returns directly to HMRC from your Ember account? Give us a go today.

VAT account example

VAT accounts vary from business to business, but here's an example of what yours might look like:
Input tax£Output tax£
VAT paid on business expensesVAT charged on sales
January2,215.23January2,780.23
February1,626.47February2,305.81
March2,792.01March3,302.45
Sub-total6,633.71Sub-total8,388.49
Other adjustments (specify)Other adjustments (specify)
Total tax deductible6,633.71Total tax payable8,388.49
Payable to HMRC1,754.78
This can then be used to fill in your VAT Return. Your VAT return and payment are both due within a month after your accounting period ends.

How should I store VAT receipts?

You must keep a copy of every VAT invoice you issue, and VAT receipt you’re given, for up to 6 years.If you’re not able to present valid VAT invoices, HMRC could demand you pay back the VAT you’ve claimed, alongside any penalties they may charge.
Not only is storing digital VAT records paramount to keeping organised, it's also core to Making Tax Digital for VAT. As of April 2022, all VAT-registered business owners must store digital records and file their VAT returns electronically, unless you are exempt.

Since paper records are a thing of the past under MTD, you’ll need to store your VAT receipts digitally using MTD-compatible accounting software. If you're looking for a MTD-compliant VAT digital software, look no further than Ember. We’d love to help out.

Ellie Perkins
Ellie PerkinsFreelance Writer

You might also like

Freelancer working from home office | A Complete Guide to National Insurance

Rachel Cameron-Potter

·

Startup

The Complete Guide to National Insurance

Freelancer on the phone at wooden table | How to find work as a freelancer

Rachel Cameron-Potter

·

Freelancer

How to find work as a freelancer

Cropped woman in a lilac blazer writing on an electronic notepad | How to correct VAT errors and make adjustments

Caroline Wire

·

Startup

How to correct VAT errors and make adjustments

Don’t take our word for it.

Try Ember for free.

With our super software and talented team of qualified accountants, taking care of your business admin has never been easier. Try us free for 14 days today.

Ember