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Contact: michael.firth@taxbar.com
Procedure.Tax
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Taxpayer's duties to keep records
Records must be in a reasonably permanent and accessible medium
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“Moreover, the judge’s interpretation [in Matthews [2015] UKFTT 139 (TC)] of s 12B TMA is not only inconsistent with the OED but with what must have been Parliament’s intention. Parliament has imposed a substantial penalty under s 12B(5) TMA or paragraph 23 Sch 18 on taxpayers who fail to keep and preserve records: I do not consider Parliament intended it to be an answer to the obligation to keep and preserve records that the information was all in the taxpayer’s head and therefore recorded and preserved. I think it implicit in s 12B TMA and s 21 Sch 18 that the requirement first to keep records and then preserve them is that the legislation was requiring the information to be in a medium that is reasonably permanent and accessible, and not merely in someone’s head. And that is the meaning of ‘record’.” (Spring Capital Ltd v. HMRC [2016] UKFTT 232 (TC), §75).
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Duty to keep records necessary to deliver return that may be required (personal, trustee, partnership)
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"(1) Any person who may be required by a notice under section 8, 8A or 12AA of this Act to make and deliver a return for a year of assessment or other period shall—
(a) keep all such records as may be requisite for the purpose of enabling him to make and deliver a correct and complete return for the year or period; and
(b) preserve those records until the end of the relevant day, that is to say, the day mentioned in subsection (2) below or, where a return is required by a notice given on or before that day, whichever of that day and the following is the latest, namely—
(i) where enquiries into the return are made by an officer of the Board, the day on which, by virtue of section 28A(1B) or 28B(1B) of this Act, those enquiries are completed; and
(ii) where no enquiries into the return are so made, the day on which such an officer no longer has power to make such enquiries.
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Meaning of relevant day
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(2) The day referred to in subsection (1) above is—
(a) in the case of a person carrying on a trade, profession or business alone or in partnership or a company, the fifth anniversary of the 31st January next following the year of assessment or (as the case may be) the sixth anniversary of the end of the period;
(b) otherwise, the first anniversary of the 31st January next following the year of assessment
or (in either case) such earlier day as may be specified in writing by the Commissioners for Her Majesty's Revenue and Customs (and different days may be specified for different cases).
(2A) Any person who—
(a) is required, by such a notice as is mentioned in subsection (1) above given at any time after the end of the day mentioned in subsection (2) above, to make and deliver a return for a year of assessment or other period; and
(b) has in his possession at that time any records which may be requisite for the purpose of enabling him to make and deliver a correct and complete return for the year or period,
shall preserve those records until the end of the relevant day, that is to say, the day which, if the notice had been given on or before the day mentioned in subsection (2) above, would have been the relevant day for the purposes of subsection (1) above
(3) In the case of a person carrying on a trade, profession or business alone or in partnership—
(a) the records required to be kept and preserved under subsection (1) or (2A) above shall include records of the following, namely—
(i) all amounts received and expended in the course of the trade, profession or business and the matters in respect of which the receipts and expenditure take place, and
(ii) in the case of a trade involving dealing in goods, all sales and purchases of goods made in the course of the trade;" (TMA 1970, s.12B(1) - (3))
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Supporting documents
"“supporting documents” includes accounts, books, deeds, contracts, vouchers and receipts." (TMA 1970, s.12B(6)(b))
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Trade includes letting
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"a person engaged in the letting of property shall be treated as carrying on a trade" (TMA 1970, s.12B(6)(a))
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Preserve by any means
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"(4) The duty under subsection (1) or (2A) to preserve records may be discharged—
(a) by preserving them in any form and by any means, or
(b) by preserving the information contained in them in any form and by any means,
subject to subsection (4A) and any conditions or further exceptions specified in writing by the tribunal for Her Majesty's Revenue and Customs.
(4A) Subsection (4)(b) does not apply in the case of the following kinds of records—
(a) any statement in writing such as is mentioned in—
(i) subsection (1) of section 1100 of CTA 2010 (amount of distribution, formerly amount of qualifying distribution and tax credit), or
(ii) section 495(1) or 975(2) or (4) of ITA 2007 (statements about deduction of income tax),
which is furnished by the company or person there mentioned, whether after the making of a request or otherwise;
(b) any record (however described) which is required by regulations under section 70(1)(c) of the Finance Act 2004 to be given to a sub-contractor (within the meaning of section 58 of that Act) on the making of a payment to which section 61 of that Act (deductions on account of tax) applies;
(c) any such record as may be requisite for making a correct and complete claim in respect of, or otherwise requisite for making a correct and complete return so far as relating to, an amount of tax—
(i) which has been paid under the laws of a territory outside the United Kingdom, or
(ii) which would have been payable under the law of a territory outside the United Kingdom (“territory F”) but for a development relief." (TMA 1970, s.12B(4) - (4A)).
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Penalty up to £3,000
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"(5) Subject to subsections (5A) and (5B) below,]6 any person who fails to comply with subsection (1) or (2A) above in relation to a year of assessment or accounting period shall be liable to a penalty not exceeding £3,000.
(5A) Subsection (5) above does not apply where the records which the person fails to keep or preserve are records which might have been requisite only for the purposes of claims, elections or notices which are not included in the return.
(5B) Subsection (5) above also does not apply where—
(a) the records which the person fails to keep or preserve are records falling within paragraph (a) of subsection (4A) above; and
(b) an officer of the Board is satisfied that any facts which he reasonably requires to be proved, and which would have been proved by the records, are proved by other documentary evidence furnished to him." (TMA 1970, s.12B(5) - (5B))
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Duty to keep records necessary to deliver return that may be required (company tax return)
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"(1) A company which may be required to deliver a company tax return for any period must—
(a) keep such records as may be needed to enable it to deliver a correct and complete return for the period, and
(b) preserve those records in accordance with this paragraph.
(2) The records must be preserved until the end of the relevant day." (FA 1998, Sch 18, para 21(1) - (2))
Meaning of relevant day
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"(2A) In this paragraph “relevant day” means—
(a) the sixth anniversary of the end of the period for which the company may be required to deliver a company tax return, or
(b) such earlier day as may be specified in writing by the Commissioners for Her Majesty's Revenue and Customs (and different days may be specified for different cases)." (FA 1998, Sch 18, para 21(2A))
Extension of period until end of enquiry
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"(3) If the company is required to deliver a company tax return by notice given before the end of the relevant day, the records must be preserved until any later date on which—
(a) any enquiry into the return is completed, or
(b) if there is no enquiry, an officer of Revenue and Customs no longer has power to enquire into the return.
(4) If the company is required to deliver a company tax return by notice given after the end of the relevant day and has in its possession at that time any records that may be needed to enable it to deliver a correct and complete return, it is under a duty to preserve those records until the date on which—
(a) any enquiry into the return is completed, or
(b) if there is no enquiry, an officer of Revenue and Customs no longer has power to enquire into the return." (FA 1998, Sch 18, para 21(3) - (4))
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Records required
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"(5) The records required to be kept and preserved under this paragraph include records of—
(a) all receipts and expenses in the course of the company's activities, and the matters in respect of which the receipts and expenses arise, and
(b) in the case of a trade involving dealing in goods, all sales and purchases made in the course of the trade." (FA 1998, Sch 18, para 21(5))
Preserve by any means
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"(1) The duty under paragraph 21 to preserve records may be discharged—
(a) by preserving them in any form and by any means, or
(b) by preserving the information contained in them in any form and by any means,
subject to sub-paragraph (3) and any conditions or exceptions specified in writing by the Commissioners for Her Majesty's Revenue and Customs.
(2) …
(3) Sub-paragraph (1)(b) does not apply in the case of the following kinds of records—
(a) any statement in writing such as is mentioned in—
(i) section 1100(1) of the Corporation Tax Act 2010 (amount of distribution, but formerly amount of qualifying distribution and tax credit), or
(ii) section 495(1) or 975(2) or (4) of the Income Tax Act 2007 (statements about deduction of income tax),
provided by the company or person there mentioned whether after the making of a request or otherwise;
(b) any record (however described) which is required by regulations under section 70(1)(c) of the Finance Act 2004 to be given to a sub-contractor (within the meaning of section 58 of that Act) on the making of a payment to which section 61 of that Act (deductions on account of tax) applies;
(c) any record relating to an amount of tax–
(i) paid under the law of a territory outside the United Kingdom, or
(ii) which would have been payable under the law of a territory outside the United Kingdom (“territory F”) but for a development relief.
(4) In sub-paragraph (3)(c) “development relief” means a relief—
(a) given under the law of territory F with a view to promoting industrial, commercial, scientific, educational or other development in a territory outside the United Kingdom, and
(b) about which provision is made in arrangements which have effect under section 2(1) of TIOPA 2010 (double taxation relief by agreement with territories outside the United Kingdom)." (FA 1998, Sch 18, para 22)
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Penalty of up to £3,000
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"(1) A company which fails to comply with paragraph 21 in relation to an accounting period is liable to a penalty not exceeding £3,000, subject to the following exceptions.
(2) No penalty is incurred if the records which the company fails to keep or preserve are records which might have been needed only for the purposes of claims, elections or notices not included in the return.
(3) No penalty is incurred if—
(a) the records which the company fails to keep or preserve are statements in writing such as are mentioned in–
(i) section 1100(1) of the Corporation Tax Act 2010 (amount of distribution, but formerly amount of qualifying distribution and tax credit), or
(ii) section 495(1) or 975(2) or (4) of the Income Tax Act 2007 (statements about deduction of income tax),
provided by the company or person there mentioned whether after the making of a request or otherwise, and
(b) an officer of Revenue and Customs is satisfied that any facts which they reasonably require to be proved, and which would have been proved by the records, are proved by other documentary evidence furnished to them." (FA 1998, Sch 18, para 23)
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Duty to keep records in support of an income tax/CGT claim
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"(1) Any person who may wish to make a claim in relation to a year of assessment or other period shall—
(a) keep all such records as may be requisite for the purpose of enabling him to make a correct and complete claim; and
(b) shall preserve those records until the end of the relevant day.
(2) In relation to a claim, the relevant day for the purposes of sub-paragraph (1) above is whichever of the following is the latest, namely—
(a) where enquiries into the claim or any amendment of the claim are made by an officer of the Board, the day on which, by virtue of paragraph 7(1) below, those enquiries are completed; and
(b) where no enquiries into the claim or any amendment of the claim are so made, the day on which such an officer no longer has power to make such enquiries." (TMA 1970, Sch 1A, para 2A(1) - (2))
SDLT
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- Duty to keep records in support of SDLT return (at least 6 years)
"(1) A purchaser who is required to deliver a land transaction return must—
(a) keep such records as may be needed to enable him to deliver a correct and complete return, and
(b) preserve those records in accordance with this paragraph.
(2) The records must be preserved until the end of the later of the relevant day and the date on which—
(a) an enquiry into the return is completed, or
(b) if there is no enquiry, the Inland Revenue no longer have power to enquire into the return.
(2A) “The relevant day” means—
(a) the sixth anniversary of the effective date of the transaction, or
(b) such earlier day as may be specified in writing by the Commissioners for Her Majesty's Revenue and Customs (and different days may be specified for different cases).
(3) The records required to be kept and preserved under this paragraph include—
(a) relevant instruments relating to the transaction, in particular, any contract or conveyance, and any supporting maps, plans or similar documents;
(b) records of relevant payments, receipts and financial arrangements.
(4) The Commissioners for Her Majesty's Revenue and Customs may by regulations—
(a) provide that the records required to be kept and preserved under this paragraph include, or do not include, records specified in the regulations, and
(b) provide that those records include supporting documents so specified.
(5) Regulations under this paragraph may make provision by reference to things specified in a notice published by the Commissioners for Her Majesty's Revenue and Customs in accordance with the regulations (and not withdrawn by a subsequent notice).
(6) “Supporting documents” includes accounts, books, deeds, contracts, vouchers and receipts." (FA 2003, Sch 10, para 9)
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Preserve in any form
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"The duty under paragraph 9 to preserve records may be satisfied—
(a) by preserving them in any form and by any means, or
(b) by preserving the information contained in them in any form and by any means, subject to any conditions or exceptions specified in writing by the Commissioners for Her Majesty's Revenue and Customs." (FA 2003, Sch 10, para 10)
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- Duty to retain information relating to non-notifiable transactions
"(5) Part 2 of Schedule 11 imposes a duty to keep and preserve records in respect of transactions that are not notifiable." (FA 2003, s.79(5))
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VAT
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- Duty to maintain and preserve records
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Duty to retain
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"(1) Every taxable person shall, for the purpose of accounting for VAT, keep the following records—
(a) his business and accounting records,
(b) his VAT account,
(c) copies of all VAT invoices issued by him,
(d) all VAT invoices received by him,
(da) all certificates—
(i) prepared by him relating to acquisitions by him of goods from other member States, or
(ii) given to him relating to supplies by him of goods or services,
provided that, owing to provisions in force which concern fiscal or other warehousing regimes, those acquisitions or supplies are either zero-rated or treated for the purposes of the Act as taking place outside the United Kingdom,
(e) documentation received by him relating to acquisitions by him of any goods from other member States,
(f) copy documentation issued by him relating to the transfer, dispatch or transportation of goods by him to other member States,
(g) documentation received by him relating to the transfer, dispatch or transportation of goods by him to other member States,
(h) documentation relating to importations and exportations by him,
(i) all documents received in accordance with regulation 15C and copies of such documents provided in accordance with that regulation,
(j) a copy of any self-billing agreement within regulation 13(3A) to which he is a party;
(k) where he is a customer, party to a self-billing agreement within regulation 13(3A), the name, address and VAT registration number of each supplier with whom he has entered into a self-billing agreement.
(l) where the taxable person is subject to the requirements of regulation 32A, the electronic account required by that regulation." (SI 1995/2518, r.31(1))
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Form of preservation
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"(4) The duty under this paragraph to preserve records may be discharged—
(a) by preserving them in any form and by any means, or
(b) by preserving the information contained in them in any form and by any means,
subject to any conditions or exceptions specified in writing by the Commissioners for Her Majesty's Revenue and Customs." (VATA 1994, Sch 11, para 6(4))
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"(1) Subject to paragraph (2) the electronic account required to be kept pursuant to regulation 31(1)(l) must be preserved using functional compatible software.
(2) The obligation under paragraph (1) does not apply to a person to whom the requirements of regulation 32A have ceased to apply.
(3) Subject to paragraph (1) the duty to preserve records required to be kept pursuant to regulations 31 and 31A may be discharged by—
(a) preserving them in any form or by any means; or
(b) preserving the information in them by any means,
subject to any conditions or exceptions specified in writing by the Commissioners.
(4) The functional compatible software must take a form approved by the Commissioners in a specific or general direction." (SI 1995/2518, r.31AA)
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Obligation to keep electronic records
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"(1) Subject to regulation 32B a taxable person shall keep and maintain the information specified in paragraphs (2) and (3) in an electronic form (“the electronic account”).
(2) The information specified for the purposes of paragraph (1) is—
(a) the name of the taxable person;
(b) the address of the taxable person's principal place of business;
(c) the taxable person's VAT registration number; and
(d) any VAT accounting schemes used by the taxable person.
(3) Subject to paragraph (4) the information specified for the purposes of paragraph (1) for each accounting period is—
(a) subject to sub-paragraph (c), for each supply made within the period—
(i) the time of supply,
(ii) the value of the supply, and
(iii) the rate of VAT charged;
(b) subject to sub-paragraph (c), for each supply received within the period—
(i) the time of supply,
(ii) the value of the supply, and
(iii) the total amount of input tax for which credit is allowable under section 26 of the Act;
(c) where more than one supply is recorded on a tax invoice and those supplies are either—
(i) supplies made which are required to be accounted for in respect of the same prescribed accounting period and are subject to the same rate of VAT, or
(ii) supplies received for which credit is allowable in the same prescribed accounting period,
they may be treated as a single supply for the purposes of either sub-paragraph (a) or b), whichever is relevant;
(d) the information specified in each sub-paragraph of paragraphs (3) and (4) of regulation 32;
(e) where adjustment or correction is made to the VAT account which is required or allowed by any provision of the Act, or any regulations made under the Act, the total amount adjusted or corrected for the period pursuant to that provision or those regulations;
(f) the proportions of the total of the VAT exclusive value of all outputs for the period which are attributable in each case to standard rated, reduced rated, zero-rated, exempt or outside the scope outputs.
(4) The information specified in paragraph (3) may be varied by direction of the Commissioners to make provision about—
(a) supplies of investment gold which are subject to the provisions of regulation 31A;
(b) the operation of the flat-rate scheme under Part 7A of these Regulations (flat-rate scheme for small businesses);
(c) the operation of retail schemes under Part 9 of these Regulations (supplies by retailers);
(d) cases where the Commissioners are satisfied that keeping and maintaining information as specified in this regulation is likely to be impossible, impractical or unduly onerous." (SI 1995/2518, r.32A(1) - (4))
Functional compatible software
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"(5) The electronic account must be kept and maintained using functional compatible software.
(6) The functional compatible software must take a form approved by the Commissioners in a specific or general direction.
(7) A direction under paragraph (6) may also specify the circumstances in which functional compatible software may be used or not used." (SI 1995/2518, r.32A(8) - (9))
“functional compatible software” means a software program or set of compatible software programs the functions of which include—
(a) recording and preserving electronic records in an electronic form;
(b) providing information to HMRC from the electronic records and returns in an electronic form and by using the API platform; and
(c) receiving information from HMRC using the API platform in relation to a person's compliance with obligations under these Regulations which are required to be met by use of the software;" (SI 1995/2518, r.24)
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"“API platform” means the application programming interface that enables electronic communication with HMRC, as specified by the Commissioners in a specific or general direction" (SI 1995/2518, r.24)
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Time limit: same deadline as return
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"(8) The information specified in paragraph (3) must be entered in the electronic account for the relevant prescribed accounting period no later than the earlier of the date by which the taxable person is required to make the return or the date the return is made for that prescribed accounting period.
(9) Changes to the information specified in paragraph (2) must be made no later than the end of the prescribed accounting period in which those changes occur." (SI 1995/2518, r.32A(8) - (9))
Corrections to be made immediately
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(10) Where a taxable person discovers an error or omission in the electronic account that person must correct the electronic account as soon as possible but in any event no later than the end of the prescribed accounting period in which the error is discovered." (SI 1995/2518, r.32A(10))
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Exemptions
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"(1) The requirements imposed by regulation 32A do not apply to a person—
(a) who the Commissioners are satisfied is a practising member of a religious society or order whose beliefs are incompatible with the use of electronic communications, or
(b) for whom an insolvency procedure as described in any of paragraphs (a) to (f) of section 81(4B) of the Act is applied, or
(c) for whom the Commissioners are satisfied that it is not reasonably practicable to make a return using a compatible software return system for reasons of disability, age, remoteness of location or any other reason." (SI 1995/2518, r.32B(1))
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See further B11: VAT returns
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Exemption where supplies in past year was less than VAT threshold
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"(2) This paragraph applies if, for any month (“the current month”), the value of a taxable person's taxable supplies, in the period of one year ending with the month before the current month, was less than the VAT threshold. The “VAT threshold” has the meaning given in paragraph 6(9) of Schedule 11 to the Act.
(3) Where paragraph (2) applies to a taxable person for the current month and has not ceased to apply for any month prior to the current month then the requirements of regulation 32A shall not apply to that person.
(4) In a case where paragraph (2) ceases to apply to a taxable person, the requirements of regulation 32A shall apply from the beginning of that person's next taxable period falling on or after the day on which that application ceases.
(5) Where a business or a part of a business carried on by a taxable person is transferred to another person as a going concern then, for the purposes of determining whether paragraph (2) applies to the transferee, the transferee shall be treated as having carried on the business or part of the business before as well as after the transfer and the supplies by the transferor shall be treated accordingly." (SI 1995/2518, r.32B(2))
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Election not to be exempt
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"(6) The exemptions under paragraphs (1)(b) and (3) do not apply if a person has elected not to be exempt in accordance with regulation 32C." (SI 1995/2518, r.32B(6))
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"(1) An election not to be exempt under regulation 32B must—
(a) be made before the start of the next prescribed accounting period (“the period”) in which the exemption would otherwise apply, and
(b) specify the date that the next period begins.
(2) An election has effect for the next period referred to in paragraph (1)(b) and for subsequent periods in which the exemption would otherwise apply.
(3) An election may be withdrawn and the withdrawal shall have effect for the period which immediately follows the period in which it is notified and for subsequent periods.
(4) An election and withdrawal of an election must be made by notice to the Commissioners." (SI 1995/2518, r.32C)
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- VAT account​
"(1) Every taxable person shall keep and maintain, in accordance with this regulation, an account to be known as the VAT account.
(2) The VAT account shall be divided into separate parts relating to the prescribed accounting periods of the taxable person and each such part shall be further divided into 2 portions to be known as “the VAT payable portion” and “the VAT allowable portion”.
(3) The VAT payable portion for each prescribed accounting period shall comprise—
(a) a total of the output tax due from the taxable person for that period,
(b) a total of the output tax due on acquisitions from other member States by the taxable person for that period,
(ba) a total of the tax which the taxable person is required to account for and pay on behalf of the supplier,
(c) every correction or adjustment to the VAT payable portion which is required or allowed by regulation 34, 35, 38, or 38A, and
(d) every adjustment to the amount of VAT payable by the taxable person for that period which is required, or allowed, by or under any Regulations made under the Act.
(4) The VAT allowable portion for each prescribed period shall comprise—
(a) a total of the input tax allowable to the taxable person for that period by virtue of section 26 of the Act,
(b) a total of the input tax allowable in respect of acquisitions from other member States by the taxable person for that period by virtue of section 26 of the Act,
(c) every correction or adjustment to the VAT allowable portion which is required or allowed by regulation 34, 35 or 38, and
(d) every adjustment to the amount of input tax allowable to the taxable person for that period which is required, or allowed, by or under any Regulations made under the Act." (SI 1995/2518, r.32)
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- VAT direction to keep records
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"(1) The Commissioners may direct any taxable person named in the direction to keep such records as they specify in the direction in relation to such goods as they so specify.
(2) A direction under this paragraph may require the records to be compiled by reference to VAT invoices or any other matter.
(3) The Commissioners may not make a direction under this paragraph unless they have reasonable grounds for believing that the records specified in the direction might assist in identifying taxable supplies in respect of which the VAT chargeable might not be paid.
(4) The taxable supplies in question may be supplies made by—
(a) the person named in the direction, or
(b) any other person.
(5) A direction under this paragraph—
(a) must be given by notice in writing to the person named in it,
(b) must warn that person of the consequences under section 69B of failing to comply with it, and
(c) remains in force until it is revoked or replaced by a further direction.
(6) The Commissioners may require any records kept in pursuance of this paragraph to be preserved for such period not exceeding 6 years as they may require.
(7) [Sub-paragraph (4) of paragraph 6 (preservation of information) applies]2 for the purposes of this paragraph as [it applies]2 for the purposes of that paragraph.
(8) This paragraph is without prejudice to the power conferred by paragraph 6(1) to make regulations requiring records to be kept.
(9) Any records required to be kept by virtue of this paragraph are in addition to any records required to be kept by virtue of paragraph 6." (VATA 1994, Sch 11, para 6A)
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Digital record keeping​
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See schedule A1 to TMA