As a business owner, there are rules that you need to follow. And one question we get asked a lot is how long you should keep your receipts and records for VAT purposes, follow this video or read below, and I will explain exactly what you need to know.
How long do I need to keep my records?
You are meant to keep your VAT receipts for six years, so ensure you have everything in place. If you are losing your accounting system, ensure you have access to it on an archived basis.
So if anyone did check your VAT return or your corporation tax return, you have proof that you have claimed exactly what you should do at the time, if not HMRC have the potential to add back these claims, which means you’ll have to pay back VAT or tax on those receipts, plus any penalties if they think you’ve done it illegally.
What records do I need to keep?
First, you need to keep copies of all of your customer invoices and the receipts I’ve just mentioned earlier. In some cases, you will need to keep additional records. An example of this could be a construction business: as a conversion, they can charge 5% VAT in some cases. It’s essential to keep details of the project and the planning substantiating that this is a conversion project. So, if anyone checked from HMRC, that they can see here, you’ve charged the right amount of VAT; this was the property you’re working on; it was a conversion.
The same would go for a new build property. If you’ve got pictures of the new build, you’ve got plans and details; you want to keep their records to substantiate that that work was meant to be charged at 0% VAT.
I like to go down the road of keeping everything that substantiates what you’ve got. So if anyone comes in to have a look, you’re saying: “Come on, have a look; I’ll show you exactly what you’re looking for.”
That way, you’re not over-claiming any VAT having to pay back stuff that could be a big amount in years and getting hit with penalties. So make sure if you’ve got any variations from your standard business, make sure you can support it.
What needs to be included on a VAT receipt?
A VAT receipt you’re getting from a supplier, you will need to ensure they’ve got their VAT number on there; this is very important.
If it’s a small receipt under a certain amount (£250 including VAT at the moment), they don’t have to put a breakdown of the VAT amount.
When it’s a larger invoice, they must put the VAT breakdown of what they charge you for. It is possible that when you’re buying materials or goods from a business, you might buy stuff with different VAT rates. So, instead of taking and claiming all the VAT back on the invoice when some of it is either exempt standard rated or zero-rated, make sure you’re claiming the right amount of VAT on that invoice.
With the current software that we’ve got today, whether it be Dext or Hubdoc, they should recognize these and make this job more manageable.
But with any accounting software, remember rubbish in, rubbish out, so make sure you check these as you are entering them.
Making Tax Digital
The records you need to keep from making tax digital are the same but must be in electronic format. So where you would have invoices to your customers, these will be stored on your accounting software, like Xero or QuickBooks; you will also have your costs that will be saved either in a picture form or they could be on Dext or Hubdoc. So, what you need for MTD is electronic copies of these receipts to support exactly what you have claimed for, and if anyone checks this from HMRC, you can prove it, so you don’t waste money down the line and have to pay penalties.
Consistency is key
Overall, it’s about being consistent and it’s keeping your record organized.
It can be a drag when you’re running a business because you are busy, but you have to do this in order to get everything sorted. So whether you keep your receipts in your wallet, picture it later, picture it on the go, just get into really good habits instead of being one of them people that have a big plastic bag full of receipts because no one wants to analyze them.
If you’ve got the opportunity where your accountant is doing this for you, then you are spending more money than you need to.
Whatever system or routine you build for your business, make sure you are staying consistent so you don’t have to go back and look for receipts and fix problems later down the line.
Remember: a little organization every day has a world of difference!
We’d love to work with business owners in the UK, so if I can help you, please contact us today and book your free discovery call. We can get to know each other, and if there are any questions I can help with, I’ll gladly assist you.
