VAT registered companies are required to have a proper accounting system in place for recording VAT transactions. The HM Revenue and Custom (HMRC) randomly select VAT registered businesses to inspect their VAT records. There are penalties for not maintaining proper VAT accounting system. The VAT inspectors will inspect your VAT records very regularly to check and until your records are satisfactory.
The law requires VAT registered businesses to keep the following accounting records for at least six years.
- The VAT Sale Invoices in sequential numbering
- Purchase or Expense Invoices with suppliers’ VAT numbers
- The VAT transactions for each VAT return including computation of output taxes less input taxes.
- The copies of the VAT returns submitted to HMRC showing the VAT payable or refund.
In normal cases, HMRC can go back three years to review the amount of VAT you have paid to ensure correct amount of VAT is paid to the VAT office. However, in case of fraud, HMRC can go back 20 years.
There are special rules about petrol used for your private motor car. You must keep detailed records of your business and private mileage to support claims that the cost of your private mileage is excluded in the VAT accounting records. Business claiming petrol reimbursement must ensure they apply the correct fuel scale charge.
Concise Accountancy – Helping small business staying on top of VAT rules