What VAT records a construction business must keep
Once your taxable turnover passes £90,000 in any rolling 12 month period you must register for VAT, and from that point HMRC expects a specific and fairly long list of records. VAT Notice 700/21 sets it out: annual accounts and profit and loss statements, bank statements and paying-in slips, cash books and account books, credit and debit notes, orders and delivery notes, purchase and sales books, purchase invoices and copies of every sales invoice you issue, records of daily takings where relevant, and general business correspondence.
For a construction trade the list is less intimidating than it reads. Practically it means: every invoice you raise, every supplier invoice and builders merchant receipt you pay, your bank feed, and the correspondence that explains anything unusual. The additions that catch trades out are the copies of your own sales invoices (people keep what they receive and lose what they send) and the correspondence file (the email in which a contractor confirmed end user status is a VAT record).
Alongside all of that sits the VAT account, covered below, and any evidence supporting a claim for input tax. HMRC's position on input tax is that a valid VAT invoice is the primary evidence. Alternative evidence can be accepted, but it is discretionary, and a merchant receipt that does not show the supplier's VAT number is a weak substitute for the one that does.
How long you must keep VAT and CIS records
Two clocks run at once, and they do not tick at the same speed. On the VAT side, HMRC's guidance states that generally you must keep all your business records for VAT purposes for at least 6 years. On the Self Assessment side, a self-employed subcontractor must keep business records for 5 years after the 31 January submission deadline of the relevant tax year. That second rule is the one people misquote as "five years", when the practical effect is closer to six years from the end of the tax year.
| Record type | Retention period | Worked date for 2026/27 |
|---|---|---|
| VAT records (invoices, VAT account, supporting documents) | At least 6 years | Records for the quarter to 31 March 2027 kept until at least 31 March 2033 |
| Self Assessment business records (sole trader subcontractor) | 5 years after the 31 January filing deadline | 2026/27 return due 31 January 2028, records kept until 31 January 2033 |
| Self Assessment records where the return is filed more than 4 years late | 15 months after the return is actually submitted | Depends on the submission date |
| Limited company records (Companies Act requirement) | 6 years from the end of the accounting period | Year to 31 March 2027 kept until at least 31 March 2033 |
| CIS deduction statements, CIS300 returns, verification records | 3 year statutory floor, 6 years as safe practice | 2026/27 records kept until at least April 2033 |
| Anything relevant to an open enquiry, dispute or unfiled claim | Until the matter is finally settled | No fixed date |
Because the longest of these is 6 years and none of them is shorter in a way that matters, the simplest policy for a construction business is a single 6 year rule applied to everything, with an override for anything under enquiry. Our CIS record keeping guide covers the CIS-specific documents and what HMRC asks for in a compliance check, so this guide concentrates on the VAT side of the same filing cabinet.
The VAT account: the record most subcontractors do not know they need
The VAT account is a statutory requirement, not an optional summary. It is the bridge between the underlying records and the nine boxes on the VAT return, and HMRC deliberately does not prescribe a format so long as it contains the right information.
It must separate, for each VAT period:
- Output tax due on your sales
- Output tax due under the reverse charge procedure, which for construction means the domestic reverse charge amounts you account for as a customer
- Input tax you are entitled to reclaim on business purchases
- Corrections and error adjustments, in both directions
- Any other adjustments required by the VAT rules, such as partial exemption or scheme-specific entries
If you run cloud accounting software, the VAT account exists whether you look at it or not. The reason it matters is what happens in a compliance check: the inspector works backwards from the return figures, and the VAT account is the document that shows how those figures were built. Where the account has been reconstructed after the fact rather than maintained, the reconstruction is usually where the errors surface.
Digital records and digital links under MTD for VAT
All VAT-registered businesses are now inside Making Tax Digital for VAT, regardless of turnover. That means records must be kept digitally in functional compatible software, and data must move between programs by digital link.
The digitally required records fall into four groups: designatory data (business name, principal place of business, VAT registration number, and any VAT schemes used); the per-supply records; summary totals by VAT rate; and adjustments. The per-supply detail is the part that determines how you set up your invoicing.
| Record group | What must be digital |
|---|---|
| Supplies you make (sales) | Time of supply (tax point), net value excluding VAT, rate of VAT charged |
| Supplies you receive (purchases) | Time of supply (tax point), value of the supply, amount of input tax you will claim |
| Designatory data | Business name, principal place of business, VAT number, schemes used |
| Summary and adjustments | Totals by VAT rate, error corrections, scheme adjustments |
A digital link is a transfer or exchange of data between software programs that happens without manual intervention. An API connection is a digital link. Linked cells between spreadsheets are a digital link. Emailing a spreadsheet for import is a digital link. Reading a total off one screen and typing it into another is not, and neither is copy and paste. This is the single most common MTD for VAT failure in small construction businesses, usually where a merchant statement or a subcontractor payment summary is being keyed in by hand at quarter end.
Making Tax Digital for Income Tax is a separate regime with a separate test, and it arrives for many subcontractors from April 2026 at £50,000 of gross income, dropping to £30,000 from April 2027. The trap for CIS workers is that gross means turnover before deductions. Our guide to MTD for Income Tax and CIS works through the threshold arithmetic.
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Reverse charge paperwork: the VAT records the DRC creates
The domestic reverse charge has applied to specified construction services since 1 March 2021, and it generates paperwork that would not otherwise exist. Three documents matter for record-keeping purposes.
The invoice itself. A reverse charge invoice shows the net value with no VAT charged, states the rate that would have applied, shows the amount of VAT the customer must account for, and carries the reverse charge legend. Keep your copy, as with any sales invoice.
The end user or intermediary confirmation. Where a customer tells you they are an end user (a property owner, a tenant, a developer building for their own portfolio) you charge VAT normally, and that written confirmation is what justifies the decision if HMRC later asks why the reverse charge was not applied. An email is sufficient. What is not sufficient is a verbal assurance that nobody wrote down. File the confirmation with the customer record, not with the individual invoice, and refresh it if the relationship changes.
The VAT account entries. Reverse charge amounts sit differently for the two parties: the supplier excludes the VAT from output tax but includes the net sale in Box 6, and the customer accounts for the output tax and, where fully recoverable, reclaims the same amount as input tax. Getting the entries wrong is a return error even when the net VAT position is nil. The mechanics for each side are covered in our guide to the VAT domestic reverse charge in construction.
If your invoicing has to separate labour from materials for CIS purposes as well as apply the reverse charge for VAT, our CIS invoice splitter shows how a single job breaks down across both sets of rules before you raise the document.
CIS statements: the records that produce your refund
On the CIS side, one document does most of the work. Every contractor who deducts CIS from your payments must issue a payment and deduction statement by the 19th of the month following the payment. It shows the gross payment, the materials element excluded from the deduction base, the rate applied (0% for gross payment status, 20% registered, 30% unregistered), the deduction taken and the net paid.
Those statements are the evidence for the CIS credit claimed on your return. A subcontractor with a full set can reconcile deductions to the pound. A subcontractor with nine months out of twelve is claiming a number they cannot fully support, which is exactly the position that turns a routine CIS refund claim into a six month exchange of letters.
The practical discipline is to check statements monthly rather than annually. A missing statement chased in the same month it arose is a two minute conversation with a contractor you are still working for. Chased eighteen months later, it is a request to a firm that may have changed its payroll provider, its bookkeeper or its trading status. Alongside the statements, keep the expense evidence that determines the size of the refund: receipts, and a contemporaneous mileage log, since the AMAP rate is 55p per mile for the first 10,000 business miles from 6 April 2026 and 25p thereafter. The categories are set out in our guide to allowable expenses for CIS subcontractors.
Penalties for VAT and CIS record failures
The direct penalties are modest. Failure to keep or preserve VAT records carries a penalty of up to £500 under section 69 of the Value Added Tax Act 1994. Failure to keep adequate Self Assessment records carries up to £3,000 per tax year under section 12B of the Taxes Management Act 1970. Neither figure is the reason to take records seriously.
The real cost is assessment by best judgement. Where records are missing, HMRC estimates the tax due on the information available, and you lose the ability to argue against the estimate with anything better than assertion. For a VAT-registered subcontractor, that can mean output tax assessed on gross bankings with input tax allowed only where an invoice survives. For a sole trader, it can mean expenses disallowed wholesale because no receipt supports them, turning an expected refund into a liability.
The second-order cost is the assessment window. HMRC can generally assess four years back, extending to six years where tax has been lost through carelessness and twenty years for deliberate conduct. Records that would have closed a query in a fortnight, once destroyed, leave several years exposed to estimation.
A working record system for a VAT-registered construction business
Nothing above requires an elaborate system. What it requires is that four things happen consistently.
- Capture at the point of spend. Photograph the merchant receipt in the van, not at the year end. Receipt-capture in accounting software attaches the image to the transaction, which is what makes it findable three years later.
- Invoice from the software, not from a template. A sales invoice raised inside the accounting system creates the digital record, applies the reverse charge treatment, and stores your copy in one action. A Word template creates one document and no record.
- Reconcile monthly. Match the bank feed, check that every contractor who paid you that month has issued a deduction statement, and file any end user confirmations received. Twenty minutes a month removes almost all of the year-end archaeology.
- Archive on a 6 year rule. One retention period for everything, with a flag on anything under enquiry or supporting an unfiled claim. Cloud storage makes the marginal cost of an extra year effectively nil, so the safe answer is usually to keep it.
The point of all of this is not compliance for its own sake. Records are what turn a refund entitlement into a refund received, and what turn a VAT check into a short exchange rather than a long one.
VAT records go back 6 years, Self Assessment records go 5 years past the 31 January deadline, and both clocks are extended by anything still in dispute. The domestic reverse charge and the MTD digital link rules each add requirements that a paper-and-shoebox system cannot meet, and CIS deduction statements remain the single document your refund depends on. If you want your records reviewed, your VAT and CIS reporting brought into one system, or an open HMRC check handled, see what we cover on our services page.