VAT Account for Record Keeping
A VAT account is a system of recording and separating Value Added Tax data. Businesses must keep records of the amount of VAT charged on sales and paid on purchases.
BOOKKEEPING VAT ACCOUNT: There are no strict rules on how VAT accounts should get formulated. But they must all include:
- The total amounts of VAT on all business purchases.
- The total amounts of VAT on all business sales.
- VAT the company owes to Her Majesty's Revenue and Customs.
- The VAT amount that the business can reclaim from HMRC.
- The flat rate percentages and turnover that applies if you are using the VAT Flat Rate Scheme.
- The VAT on any EU purchases or sales. Also known as acquisitions and dispatches respectively.
Note: You will use the figures from the business VAT account to fill in the company VAT Return.
How to Fix Errors in a VAT Account
What if you find an error in the company return? In this case you should:
- Re-submit your business Value Added Tax account.
- Include the date when the error first occurred.
- Explain the details of how it occurred and the action taken to correct it.
Note: In some cases you will also need to report the error to HM Revenue and Customs.
Writing Off Bad Debts
Her Majesty's Revenue and Customs define a 'bad debt' as an unpaid invoice exceeding six months. To write of a bad debt the business must create a separate 'VAT bad debt account'.
A bad debt account will need to show:
- The total amount of Value Added Tax involved.
- The amount you are writing off from an invoice that has been partly paid. Include any part payments.
- The tax amount that you are claiming on the debt.
- The period or periods that the VAT invoices got paid for which you are claiming relief (refund).
- The details of the original invoice such as the date, the amount, and customer name.
Note: You must keep these particular VAT records available to HMRC for at least 4 years.
Bookkeeping VAT Account Rules for Record Keeping in the United Kingdom