What bookkeeping records should I keep if I’m VAT registered?

Understanding what VAT registration changes

Once you’re VAT registered, bookkeeping stops being just about tracking income and expenses for profit and tax. You’re also acting as a collector of VAT on behalf of the tax authority. That creates an extra layer of responsibility: you must be able to show, clearly and consistently, how you calculated VAT charged to customers (output tax), VAT paid to suppliers (input tax), and how those amounts flow into each VAT return you submit.

In practical terms, the “right” records are the ones that let you answer these questions quickly and confidently: What did I sell, to whom, and when? What VAT rate applied and why? What did I buy, from whom, and when? Was I entitled to reclaim VAT on it? How do these transactions reconcile to my bank, my accounting system, and my VAT return totals? If you can evidence those points, you’re doing what VAT compliance is designed to achieve.

The core principle: keep records that prove your VAT position

VAT is transaction-based. That means you’re not just keeping totals; you’re keeping the building blocks of those totals. A solid VAT record-keeping setup preserves the “audit trail” from source documents (like invoices and receipts) through to your accounting entries and then to the figures reported on your VAT return. The goal is simple: if you were asked to justify a particular number, you could trace it back to the underlying transactions and documents without guesswork.

Many businesses run into trouble not because the VAT is wildly wrong, but because the evidence is incomplete or inconsistent. A missing invoice, unclear VAT treatment, or a pile of expenses that can’t be linked to business activity can turn a small issue into a stressful compliance problem. So think of your bookkeeping records as your protection: they demonstrate that your VAT return is based on real, supported transactions.

Sales records you should keep (output VAT)

Your sales records are the foundation for output VAT. They show what you sold, the VAT rate you applied, and the VAT you charged. The most important items to retain are your VAT invoices and the supporting documentation that explains the nature of the sale.

VAT sales invoices (and when you issue them)

For most VAT-registered businesses, VAT invoices are the primary evidence of output VAT. Keep copies of all sales invoices you issue, including credit notes and any corrected invoices. Your invoices should clearly state the supply, the date, the VAT rate, the VAT amount, and the total payable. If you use invoicing software, that usually means maintaining the digital invoice record in your system and ensuring it remains accessible and unaltered.

It’s also important to retain evidence of the invoice date and the tax point rules you’ve applied. The “tax point” (often linked to invoice date or supply date) affects which VAT period the sale falls into. Consistent dating and clear documentation help you show that you included sales in the correct VAT return.

Sales credit notes and refunds

Credit notes are just as important as invoices because they reduce output VAT. Keep copies of all credit notes issued, along with a clear reference to the original invoice and the reason for the adjustment (returns, pricing corrections, cancellations, goodwill refunds, and so on). Your bookkeeping should link the credit note to your sales ledger so your VAT return reflects the net position accurately.

If you process refunds through card providers or payment platforms, keep the refund confirmation and reconcile it to the credit note. This helps show that the VAT adjustment is tied to a real transaction and not an unsupported reduction.

Sales ledger (accounts receivable) and transaction listings

A sales ledger is a structured list of customer invoices, credit notes, payments received, and outstanding balances. Even if you’re a small business, you should maintain a sales ledger or equivalent transaction list. For VAT purposes, the sales ledger helps you demonstrate completeness: it shows that every invoice issued is recorded and included in reporting.

Where possible, keep an exportable report of sales transactions for each VAT period. This report should include invoice numbers, dates, customer names, net amounts, VAT rates, VAT amounts, and gross totals. If you ever need to revisit a prior return, having a period-by-period transaction list can be invaluable.

Evidence supporting VAT treatment on sales

Sometimes the invoice alone isn’t enough to explain why a certain VAT rate was applied. If you have zero-rated, reduced-rated, exempt, or outside-the-scope sales, keep supporting documentation. That might include product descriptions, contracts, terms of service, delivery notes, or correspondence that clarifies what was supplied and where.

For businesses selling internationally, evidence can become even more important. For example, you may need proof of where your customer belongs, where goods were delivered, or what type of service was provided. Keeping the underlying documentation alongside the invoice makes it easier to justify your VAT position later.

Purchase records you should keep (input VAT)

Input VAT is the VAT you pay on business purchases and expenses that you may be able to reclaim. The key phrase is “may be able to”: not all VAT is recoverable. Your purchase records must show what you bought, that VAT was correctly charged by the supplier, and that the cost relates to your business activities (and is not blocked or restricted).

Supplier VAT invoices and receipts

Keep supplier invoices for all purchases where you reclaim VAT. A valid VAT invoice is typically required to reclaim input VAT, especially for higher-value items. For smaller transactions, receipts may sometimes be acceptable depending on the nature of the purchase and the information shown, but invoices are the gold standard.

Make sure your supplier invoices show essential details like supplier name, invoice date, description, net amount, VAT rate, VAT amount, and total. If the invoice is missing key information, you may need to request a corrected invoice rather than relying on incomplete evidence.

Expense receipts and supporting evidence

Receipts are still important even when you have invoices, because receipts often show proof of payment, the precise items purchased, or details that invoices don’t. Keep receipts for travel, subsistence, fuel, parking, and day-to-day operating expenses. Where expenses have a mixed business/personal element, keep notes or records that explain how you separated the business portion, and ensure your VAT reclaim is consistent with that approach.

If you use expense apps or take photos of receipts, ensure the image is clear, legible, and stored in a way you can retrieve by date, supplier, or transaction reference. The record should be strong enough that someone else could look at it and understand what it is without needing your memory of the purchase.

Purchase ledger (accounts payable) and transaction listings

Like the sales ledger, a purchase ledger records supplier invoices, credit notes, and payments made. This ledger supports your input VAT claims and helps you demonstrate that your VAT return is based on a complete set of purchases.

For each VAT period, keep a report of purchase transactions including supplier names, invoice dates, invoice numbers, net amounts, VAT rates, VAT amounts, and totals. This makes it much easier to review your VAT return figures and to respond to queries quickly.

Import and overseas purchase documentation

If you import goods or buy goods/services from overseas, the documentation becomes more specialised. You may need customs paperwork, import VAT statements, shipping documents, and evidence of how you accounted for VAT under the relevant rules. Keep all import-related documents together with the supplier invoice and the accounting entries that show how the VAT was treated.

Because overseas VAT rules can be nuanced, the best practice is to preserve not only the documents themselves but also a short note explaining your VAT treatment in that case, especially if it differs from your standard domestic purchase process.

Bank, cash, and payment platform records

Your bank and payment records are the backbone of your bookkeeping because they help prove completeness and accuracy. Even a perfect invoice file can fall apart if it doesn’t reconcile to actual money movements.

Bank statements and transaction downloads

Keep all bank statements for your business accounts, including savings accounts if used for business funds, and maintain transaction downloads from your bank in a format your bookkeeping system can read. The aim is to be able to reconcile every receipt and payment to the bank. Reconciliations are powerful evidence that your books are complete and that transactions haven’t been omitted.

If you have multiple accounts, keep records for each one and reconcile them separately. If you move money between accounts, record transfers clearly so they aren’t mistakenly treated as income or expense.

Cash records and petty cash

If your business handles cash, maintain a cashbook or petty cash log. Record cash received, cash spent, what it was for, and keep supporting receipts. Cash is often an area where bookkeeping can become informal, so a clear cash record helps you maintain compliance and avoid gaps.

For retail or hospitality businesses, consider keeping daily till reports, Z-readings, or sales summaries that support the totals recorded in your accounts. These documents help demonstrate that sales were recorded accurately, especially where individual invoices aren’t issued for every transaction.

Payment processors and online platforms

If you sell through platforms or take payments via processors (card terminals, online gateways, marketplaces), keep the settlement reports and fee statements. These platforms often deduct fees before paying you, which means the “gross sale” and the “net funds received” differ. Your VAT is typically based on the gross sale value (subject to rules), so retaining the reports that show gross sales, fees, refunds, and net payouts is essential.

Make sure you can reconcile platform reports to your bank deposits and to your sales ledger. A clean reconciliation reduces the risk of under-reporting sales VAT or misclassifying fees and chargebacks.

VAT account and VAT return working papers

A VAT account is a summary record that shows how you arrived at the VAT payable or reclaimable for each period. Many accounting systems generate this automatically, but you should still retain the underlying workings and reports that support the VAT return figures.

VAT return copies and submission confirmations

Keep a copy of every VAT return submitted, including the figures for each box and the period covered. Also keep the submission confirmation or acknowledgment where available. If your VAT returns are filed via software, retain the digital confirmation and any related period reports.

It’s helpful to store VAT returns in a structured folder by period (for example, “VAT 2025 Q1” or “VAT 2025-06”) so you can quickly retrieve them and compare them with your bookkeeping records.

VAT reports that reconcile to the return

For each VAT return, keep the detailed VAT reports that support the totals: output VAT by rate, input VAT by rate, and any adjustments. If you make manual VAT adjustments (for example, partial exemption adjustments, bad debt relief, or corrections), document the calculation and the reason. You want a clear story: here are the transactions, here are the totals, here are any adjustments, and here is the final VAT return submission.

Even when your software produces the return, it’s wise to retain a snapshot of the VAT detail report at the point of submission. This protects you if the bookkeeping records are later altered or if software settings change.

Records for VAT rates and how you decided them

Applying the correct VAT rate is one of the most common pain points for businesses, especially those selling multiple product types or services. The records you keep should help show not only what rate you applied, but why it was reasonable to do so.

Product and service descriptions

Keep clear descriptions of what you sell. This might sound basic, but vague invoice descriptions can create uncertainty. If your products or services have different VAT liabilities, store your product list or price list in a way that includes the intended VAT treatment. If you update your offerings, keep a record of when changes were made so you can understand historical VAT treatment.

Contracts, statements of work, and terms

For services, contracts and statements of work can be crucial, especially where timing, deliverables, or location affects VAT treatment. Keep signed agreements and any variations. If you invoice in stages, keep the schedule and evidence of when milestones were delivered or accepted.

For subscriptions or ongoing services, keep terms and billing policies that explain what the customer is paying for and when the supply takes place. These details help support tax point decisions and VAT period allocations.

Customer location and status evidence (where relevant)

Where VAT treatment depends on customer location or whether the customer is a business or consumer, keep evidence supporting that status. This could include billing addresses, delivery addresses, VAT numbers, or other customer account details. The key is that your records should make it clear why you treated the sale the way you did, especially for cross-border transactions.

Special categories of records many VAT-registered businesses overlook

Some records are easy to forget until you need them. Keeping them from the start can save significant time later.

Bad debt, write-offs, and debt recovery evidence

If customers don’t pay, you may write off invoices as bad debts. Depending on the rules that apply to you, there may be mechanisms for adjusting VAT previously accounted for on a sale that is never paid. To support your position, keep evidence of the original invoice, payment history, reminders, collection efforts, and the date and decision to write off the debt.

Also keep records of any later recoveries. If a customer eventually pays after you wrote the debt off, you’ll need to account for the change appropriately, and the audit trail makes that far easier.

Capital assets and large purchases

Large purchases like equipment, vehicles, or property-related costs often have special VAT considerations. Keep purchase invoices, finance agreements, and evidence of business use. If an item has mixed business/personal use, keep a log or policy showing how you determined the business portion and how you treated VAT accordingly.

For assets that are sold later, keep the sale invoice and ensure the VAT treatment on disposal is documented. Maintaining a fixed asset register can be very helpful: it records acquisition date, cost, VAT, depreciation (for accounting), and disposal details in one place.

Staff expenses and reimbursements

If employees incur expenses and you reimburse them, keep the employee expense claim, the underlying receipts, and evidence of reimbursement. For VAT, the key issue is whether the business has the right evidence to reclaim VAT and whether the expense is genuinely for business purposes. A clear expense claim process supports both.

If you pay per diems or allowances, keep the policy and the calculations. Even if VAT reclaim is limited on certain costs, the documentation helps show what was paid and why.

Entertainment and blocked input VAT areas

Some categories of spending are restricted for VAT reclaim in many jurisdictions or require careful treatment. Business entertainment, staff entertainment, and certain vehicle costs are common examples. Keep invoices and receipts, but also keep notes that clarify the nature of the expense: who attended, the business purpose, and whether it was staff-only or included clients. This context helps determine whether VAT is recoverable and supports your decision if questioned later.

Corrections, adjustments, and error logs

Mistakes happen. What matters is how they’re handled. Keep a record of corrections made, including the date, what was corrected, why, and how it affected VAT reporting. If you correct VAT errors in a later return, keep the calculation that shows the original error and the correction mechanism used.

Having a simple “VAT adjustments log” can be extremely useful. It might list the period, the type of adjustment, the amount, the reason, and the supporting documents. That way, you can quickly explain differences between your raw transaction VAT totals and the final VAT return figures.

Digital record-keeping and how to store documents

Many VAT-registered businesses keep records digitally, which can be efficient and secure when done properly. The key is to maintain accessibility, accuracy, and a reliable audit trail.

Paper vs digital: consistency matters more than format

Whether you store documents on paper, digitally, or a combination, the most important thing is consistency and completeness. Digital storage is often easier to search and back up, but it must be organised. Paper records can be valid, but they are easier to misplace and harder to share or review. If you use a hybrid system, establish a rule: for example, “All invoices are scanned and stored digitally; paper is optional.”

Folder structures and naming conventions

A simple structure saves hours over time. Consider organising by tax year and VAT period, then by sales and purchases. For example: “2025-2026 > VAT Q1 > Sales Invoices,” “Purchases,” “Bank,” “VAT Return.” Use consistent file names such as “SupplierName_InvoiceNumber_YYYY-MM-DD” so you can locate items quickly.

If you’re using accounting software with document attachments, attach invoices and receipts directly to transactions. This creates a tight audit trail and reduces the risk of losing documents in separate storage systems.

Backups, access, and retention

Back up your records regularly. Cloud systems often have built-in redundancy, but it’s still wise to maintain an additional backup of key financial documents and exports. Control access too: limit who can edit transactions, and ensure sensitive information is protected. A record-keeping system is only as good as its ability to preserve evidence over time.

Making sure your records align with your VAT scheme

Your VAT scheme (the method you use to account for VAT) can affect what records are especially important. Even if the fundamentals remain the same, your bookkeeping needs to reflect how you calculate VAT and when you recognise it.

Invoice-based vs cash-based VAT accounting

Under invoice-based accounting, VAT is typically accounted for based on invoice dates or tax points, regardless of whether you’ve been paid. Under cash-based accounting, VAT is linked more closely to payments received and payments made. That means your records must clearly show payment dates and allocations to invoices.

If you use cash-based accounting, keep stronger evidence around receipts and payments, including remittance advice, payment references, and allocation records. If you use invoice-based accounting, the completeness and accuracy of invoice issuance dates becomes even more critical.

Flat rate or simplified schemes

Some businesses use simplified schemes where VAT is calculated differently, often as a percentage of gross turnover rather than by offsetting input VAT against output VAT in the usual way. If you use such a scheme, keep records that clearly identify your scheme category, the percentage used, and how you calculated the “VAT-inclusive turnover” figures the scheme relies on.

Even under simplified schemes, you’ll still need robust sales records, bank reconciliations, and evidence of turnover. You may also need to retain certain purchase records, especially if there are exceptions or specific items that can still be treated differently. The overarching rule remains: you must be able to justify the numbers reported.

How long should you keep VAT records?

VAT record retention periods can vary depending on jurisdiction and specific circumstances, and sometimes extended periods apply to certain transactions or sectors. As a practical approach, keep VAT records for the full legally required period in your jurisdiction, and consider retaining key summaries and annual reports even longer if storage is not a burden.

If you are unsure of the exact retention requirement where you are, it’s safer to keep records longer rather than shorter, especially because VAT queries can arise after returns have been filed. Digital storage makes longer retention easier, provided you maintain orderly organisation and backups.

Practical checklist: the VAT bookkeeping records to maintain

Here’s a practical list you can use to review your record-keeping setup. You don’t need to overcomplicate it, but you do need to be consistent.

Sales side records:

• Copies of all sales invoices issued, including VAT rate and VAT amount shown clearly.

• Copies of all sales credit notes, refunds, and adjustments linked to original invoices.

• A sales ledger or sales transaction report per VAT period.

• Evidence supporting VAT treatment on non-standard sales (zero-rated, reduced, exempt, outside scope), such as contracts, delivery notes, or product descriptions.

Purchase side records:

• Supplier VAT invoices for all VAT reclaimed.

• Receipts and supporting evidence for expenses, with business purpose notes where helpful.

• A purchase ledger or purchase transaction report per VAT period.

• Import/customs documentation and overseas purchase records where relevant.

Money movement records:

• Bank statements and transaction downloads for all business accounts.

• Cashbook and petty cash records, including supporting receipts.

• Payment processor and marketplace reports showing gross sales, fees, refunds, and settlements.

VAT reporting records:

• Copies of VAT returns submitted and submission confirmations.

• VAT detail reports supporting each return’s figures (output VAT, input VAT, and adjustments).

• A VAT adjustments log with calculations and explanations for manual entries or corrections.

Other supporting records:

• Fixed asset register and large purchase documentation, including evidence of business use.

• Employee expense claims, receipts, and reimbursement evidence.

• Notes and policies for restricted areas (entertainment, vehicles, mixed use) showing how VAT treatment was decided.

Common pitfalls and how good records prevent them

It’s worth highlighting a few typical issues VAT-registered businesses encounter, because each one is essentially a record-keeping problem in disguise.

One common pitfall is reclaiming VAT without holding the right invoice evidence. Businesses sometimes rely on bank statements alone, but a payment record rarely proves the VAT charged, the VAT rate, or what was purchased. Keeping supplier invoices and receipts, linked to the accounting entry, resolves this quickly.

Another common issue is misapplying VAT rates because invoice descriptions are too vague. Clear product and service descriptions, plus supporting documentation for anything unusual, can make the difference between a smooth review and an uncomfortable back-and-forth.

A third pitfall is mismatches between sales records and bank receipts, especially when payment processors deduct fees or hold funds. Keeping settlement reports and reconciling them to your accounts ensures your VAT is calculated on the correct amounts.

How to build a VAT-friendly bookkeeping workflow

Good records don’t happen by accident; they come from a routine. The easiest way to stay compliant is to build VAT record-keeping into your weekly and monthly habits rather than scrambling at VAT return time.

Start by recording sales promptly, issuing invoices with consistent numbering, and ensuring VAT rates are set correctly in your system. Then, collect purchase invoices and receipts as you go, not months later. Reconcile your bank frequently so you catch missing entries early. Finally, before submitting each VAT return, run the relevant VAT reports, review for anomalies, and save a PDF or export of the reports used to compile the return.

This workflow creates a neat chain: documents → bookkeeping entries → reconciled bank → VAT reports → VAT return. If you can keep that chain intact, your VAT record-keeping will be resilient even as your business grows.

Final thoughts: keep the records that tell the whole story

If you’re VAT registered, the best record-keeping mindset is: “Could someone independent understand and verify my VAT return from my files?” That doesn’t mean you need to keep every scrap of paper forever, but it does mean you need clear evidence for what you sold, what you bought, what VAT applied, and how it all ties back to your reported figures.

When in doubt, keep the document and add a short note explaining anything unusual. A little extra clarity now can prevent major headaches later. With a consistent system for invoices, receipts, bank reconciliations, and VAT reports, you’ll have the records you need not only to stay compliant, but to run your business with better financial visibility and confidence.