I have a client who in the past two years (8 quarters ) reported the output tax and paid the VAT to HMRC, however, they are estimated figure (not far from the actual) so did not issue the VAT invoice to customers and customers have not paid in the past two years, as the prices of providing the services have not been formally agreed.
However, they are due for a VAT inspection, need to send the invoices to the customer, what is the best action?
1) Issue the invoices backdated for 8 quarters as the date show relevant period, these invoices matched the VAT return figures;
2) Issue the invoices as above ,add then do a credit note to cancel all previous invoice and raise one total bill (including 8 quarters figure at the correct invoices ) as at today’s date. However, this method will result their customer to make a large VAT claim this quarter, may trigger a VAT inspection for them?
The HMRC guideline regarding this states:
VR6700 - Late claims for input tax: Time limits general
Regulation 29 of the VAT Regulations 1995 provides that, normally, input tax must be deducted in the return for the accounting period in which the entitlement to deduct it arose.
The entitlement to make a claim to deduct input tax arises in the accounting period in which the taxable person has both incurred the input tax and received the documentary evidence, that is to say the VAT invoice, to support its deduction.
From 1 April 2009, the taxable person has four years from the due date of the return for the accounting period in which the entitlement to make the claim to deduct arose in which to make a late claim for input tax - the transitional arrangements for the change from three years to four is set out at VR6800.
Ali Ltd is accounting for VAT in accounting periods ending 31 March, 30 June, 30 September and 31 December. It incurs input tax on the purchase of a crate of widgets on 25 January 2007. It gets the VAT invoice on 21 April 2007. The entitlement to deduct the input tax has arisen in the accounting period ending on 30 June 2007 and the due date for the return for that accounting period is 31 July 2007. Thus Ali Ltd has until 31 July 2011 to claim that input tax.