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5 Top Tips For Keeping Good VAT Records for SMEs


Good housekeeping from a 'financial' perspective is crucial if you want to keep updated on all bookkeeping and VAT records.


#1:  Keeping Trading Records In Good Order


Not only do you need to maintain all the records HMRC requires, but the records need to be maintained in an orderly way so that all documents can be found in an inspection.  Throwing receipts into plastic bags are not good practice when it comes to the HMRC.


While there are no set methods to follow, you should set a system for yourself allowing you to allocate the documents used; thereby, arriving at specific figures on the VAT return.  The documents include invoices, receipts, and such like items.


Tech tip: try to use Xero to run all of the accounts and record sales.


#2:  Maintain VAT Records On Hand


It is recommended that you keep separate paper and electronic folders containing the following:


•           a copy of the VAT registration certificate

•           copies of all submitted VAT returns

•           copies of all correspondence with HMRC


#3:  Monitoring The VAT Account


Monitoring a VAT account typically involves the recording of you arrive at the figures on your VAT returns.  For instance, look at the following:


xxx  -  the VAT amount on sales

xxx  -  less the VAT on purchases

xxx  -  the amount of VAT you will owe the HMRC


If your company is a small one with a minimal number of transactions, it is possible to maintain all of the records in a spreadsheet.  We recommend managing the records using an accounting system, such as Xero, where you will have a more detailed audit trail with some protection against any destruction of papers or accidental document losses.


Using the accounting system, you will be able to review all of the credit and debit entries that form the VAT account; as well as 'drilling down' into the detailed transactions forming your VAT return.  This could be either an accrual account or cash account for VAT, and operating the VAT scheme as a flat rate scheme. Make sure to keep on top of things as they may change after the Brexit withdrawal agreement.


#4:  Creating Sales Records


It is essential that you retain copies of all the VAT invoices issued by a company detailing the following:


•           the rate of VAT charged

•           the company's VAT registration number

•           the VAT tax point or the date on which the VAT is considered charged

•           a detailed description of the company's product supply

•           self-billing agreements - this is a type of agreement where the client prepares the sales invoice on the behalf of the company.

•           the address, name and VAT number of self-billing suppliers

•           copies of self-billing agreement documentation - this documentation needs to be reviewed on an annual basis


#5:  Maintain Records Of All The Purchasing Activities


It is essential that the company maintains copies of all receipts and purchase invoices issued to the business, thus showing the following items:


•           exportation documents pertaining to any overseas trading

•           original VAT invoices or similar evidence of VAT paid on purchases

•           documents or credit notes that may alter the monetary value of the product


It should be noted that HMRC will accept any electronic copies of documents as evidence.  However, for this to be accepted, it is necessary for the following data to be visible:


•           the VAT registration number of the supplier

•           the VAT rate charged for the service or product

•           the value of the charged VAT rate - in this instance, it is recommended that you review for zero-rated or exempt items in the invoice.  Never assume the full invoice is a VAT charged supply.

•           the company name on your invoice - this is essential as you can only recover VAT when the invoice is issued to your company specifically.  If you are a sole trader, it is necessary for the entity to be VAT registered.

•           the date on which the charge counts as VAT, also known as the tax point


It is important to note that receipts do not indicate a company's name and do not provide the VAT rate separately.  You will need to calculate the VAT included in the receipt value individually if the supplier has a VAT number indicated on the receipt.


At the time of writing this article, the stipulated VAT rate is measured at 20 percent; thereby, making the VAT fraction £X/6.  This must not be confused with the rate of £X/5 as the former amount includes VAT.  For instance, if the receipt has a value of £12, then you can use the equation of £12 / 6 which is £2.  This means that the VAT charge is £2.


Tech tip:  try using Xero to operate the accounts and detail and purchases.  You can also use Receipt Bank to transfer snapped, scanned or PDF receipts and invoices to account systems.  If you do not want to purchase Receipt Bank, then try utilizing the Xero Files system and transfer the documents onto Xero. Even if you overpay it’s okay, you can always claim back VAT if you need to.


#6:  Items That May Catch You


It is also recommended that you maintain records of the following:


•           products that are given away or taken from stock for private use

•           items that you are not able to claim VAT on, such as entertainment of business guests

•           claiming VAT on mileage

•           writing off bad debts


All of this will help you manage your VAT records and make things easier.


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