VAT Purchase Records

Background

Section 16 of the VAT Act 1972 and Regulation 9 of the VAT Regulations 1979 impose an obligation on every taxable person to keep a full and true record of all transactions which affect, or may affect, their liability to tax. This legislation is merely reinforcing Article 22 of the Sixth EU Directive.

In relation to purchases Regulation 9 requires a taxable person to keep a record of purchases made showing:

• The amount of the relevant consideration
• The corresponding tax invoiced by the supplier
• The VAT rate applying
• A cross reference to the corresponding invoice or other record of purchase available.

Invoices paid

The most common method of recording purchases is the “creditors” system which logs purchases as they are invoiced and enables the taxpayer to reclaim any VAT on such purchase invoices, despite the fact that the invoices might not be paid for some time. However, a purchases system based on “invoices paid” would be completely acceptable. The cheque payments book or other record of payment must be suitably analysed to show separately the VAT exclusively values and the VAT at the appropriate rates of all purchases for resale and not for resale. These should be cross referenced to the relevant purchase invoices. Where invoices were part paid, then only the correct proportion of the VAT included in the payment could be reclaimed.

Such system would, of course, involve a cash flow loss to the taxable person who could not reclaim VAT until it had been paid. However, it could be of interest to a small business who would be saved the trouble of keeping a VAT purchase book.

Revenue view

Revenue would have no objection to a taxable person changing their basis of reclaiming VAT to an “invoices paid” system providing it is done correctly with no duplication of VAT credit. Obviously at the time of changeover the VAT on invoices previously reclaimed under a “creditors system” could not be claimed again under a “payments system”.