Many of the businesses that haven’t taken advice from specialists such London Registrars (a firm of company secretaries and business consultants in London) may have been informed after a visit by HMRC that their VAT records were in need of improvement.
In the last few years HMRC have concentrated on publicising the importance of maintaining appropriate records. Since 2011, this publicity campaign has been supported by a special programme for checking corporate records. For those organisations with records that fail to pass muster, there is the threat of a fine of up to £3,000, levied under the rules for direct tax (income and corporation tax) self-assessment. However, in relation to VAT, a separate record-keeping penalty of up to £500 can be imposed.
As far as direct taxes are concerned, your organisation’s general accounting records will suffice for HMRC. However, VAT brings with it greater record-keeping obligations. Not only must companies keep the usual records, but in addition they will also be expected to maintain a VAT account, which is broadly a record of how figures for each VAT return were arrived at.
Copies of VAT invoices issued by your business, original VAT invoices or similar evidence of VAT paid on purchases, export documents relating to overseas trade and credit notes and other documents that alter the value of a supply must also be kept. Although all of these documents may to be converted and stored in digital format, such as by scanning and saving documents received or by creating PDFs, you must obtain HMRC’s permission before doing so.
Keeping the records is not the sole requirement for businesses; they must also have an effective retrieval system to facilitate inspection. Putting invoices and receipts into carrier bags is not an option. Invoices issued by your company must also show certain information, including your registration number, the rate of VAT charged and the tax point, which is the date on which VAT counts as charged.
VAT records must be kept for six years although documents relating to land and buildings may need to be retained for 20 years. Businesses that struggle with the storage of such documents can request that HMRC shortens this period, but must make their application in writing.