AAT Tax Processes for Businesses Level 3 Practice Exam 2026 – The All-in-One Guide to Master Your Exam!

A VAT-registered trader must maintain comprehensive business and accounting records, including invoices for transactions and a VAT account. This requirement arises from the need for accurate financial tracking and compliance with tax regulations. Keeping these records not only helps in reporting VAT accurately but also facilitates tax audits, ensuring that the trader can support their claims and adhere to legal obligations.

Invoicing is essential because it documents sales and purchases, providing a clear trail of transactions that contribute to VAT calculations. The VAT account is a systematic record that reflects the trader's VAT activity, summarizing output tax collected from sales and input tax paid on purchases, which is crucial for determining the net VAT payable or reclaimable.

This thorough documentation supports the integrity of the trader’s financial management and ensures they are prepared for any inquiries from tax authorities. Maintaining records beyond one year, as indicated in the other options, is also vital since tax authorities typically require records to be kept for a minimum period to account for potential audits and inquiries from previous years.