Chartered Management Accountant
Midas Accountancy
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VAT man Disagreement regarding VAT Invoice

My client is a second hand car dealer, and within a couple of month's of registering for VAT has been pounced on by the VAT man, who paid him a lengthy visit to basically nit-pick. He failed to come up with anything substantial, however he decided to disallow several purchase invoices my client had included in his first VAT return.

The invoices are for Warranties on the cars and comply (to the best of my knowledge) with the guidelines for an acceptable VAT invoice. There is a tax point date, the VAT registration number is shown, the VAT is split out, it says INVOICE/RECEIPT at the top and has an Invoice/Receipt number. When my client queried this with his supplier, he said that he provides exactly the same format invoice to all of his customers, most of whom are in the motor trade and they have not had any issues.

Is anyone aware of any reason why these invoices might not have been acceptable to the VAT man?

Any help would be very gratefully received.

SD

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By occca
20th Jun 2011 22:05

Ask VAT Man

Why not ask the VAT man why it has been disallowed 

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According to my client

He said they were not proper VAT invoices.

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20th Jun 2011 23:14

Just a thought

To whom is the warranty supplied (to your client or to your client's customer)?

Does your client sell the cars under the second hand goods VAT scheme?

David

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Warranties

The warranties are supplied to my client, not my client's customers.

He does operate the margin scheme on most of his vehicles.

 

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21st Jun 2011 09:25

Ask the VAT man

The invoices sound to be OK. VAT on motor parts purchased for vehicles in the second hand scheme can still be claimed, so I would think these costs should be claimable too.

I would call the VAT man and ask for specifics, ie. why is it not a proper VAT invoice.

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.

I would demand a written response on why the invocies have been disallowed with reference to statutory materials.

You can then assess:

1. If they have got it wrong

2. If they know something you dont

3. If they are wrong, you can hammer them for time and costs as their error is written down.

If you just do it on the phone then (as I learnt recently) and they are wrong they will happily lie through their teeth about their mistakes and lose all records of your conversations.

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By Monsoon
21st Jun 2011 09:53

Yep -ask!

I wouldn't be satisfied unless the inspector told me exactly what he found error with! Just "not a valid VAT invoice" would not cut the mustard. Go get him! :)

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21st Jun 2011 10:15

Question it

 I would ask for specifics - why isn't it a proper invoice don't be fobbed off? That way you can then check out in the manuals or by written request whether the VAT inspector has got it right or not. Its not just the disallowing of these warranties if this isn't correct its all the future ones too, the slap on the wrist and the potential fine depending on the view the officer takes.

One of my clients had a VAT inspection and the officer went through his paperwork with a fine tooth comb, every invoice, every receipt, bank statements, questions everything. The officer found £300 of VAT on invoices that she believed should be disallowed. The reasoning didn't make sense but it was a slap on wrist, no fine was levied because she believed in was an "innocent mistake" and the client was on a warning for 6 months. £300 doesn't sound a lot but I was so incensed by the inspectors attitude and the reasoning sounded wrong. I also had another client who claimed for the same thing, had a VAT inspection and it was allowed without question so one had to be wrong. I couldn't find anything in the VAT manuals so I sent a written query off and the answer came back that it was allowable and gave me the tribunal case that supported it. We appealled against the inspectors decision and won.

In my case it was worth doing the extra work because the client can still claim the VAT going forward, I'm confident that my other client is claiming correctly and I've also got another client who correctly claims the VAT now as well.

 

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By sanjiro
21st Jun 2011 10:22

Free Warranties?

The only time I've ever seen a warranty invoice disallowed for VAT in the motor trade was when the cars were stickered with "Free Warranty on this Car" and this would be a valid reason for disallowing them, otherwise they should be fine.

Mike

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21st Jun 2011 10:41

Perhaps...

... the VAT Officer has assumed that they are insurance warranties that would be exempt and it may be a case of pointing out his mistaken assumption?

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27th Jun 2011 11:52

Vat on warrantys

HI

Could it be that the Warranties are Insurance backed warranties ( presuming the invoices are for the actual cost of the warranty ) and if so these are subject to IPT Tax and not Vat? However if they are non insurance backed then as per any normal invoice you would expect providing you meet the general criteria on a purchase invoice you can reclaim the vat.

In respect to the warranty companys some of the paper work is not the greatest in regards to recognising wether the Warranty is IPT tax or Vat - may be worth checking.

Almost 8/10 warranties in the motor trades are IPT tax based and not vat based.

Thanks

 

Craig

 

 

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27th Jun 2011 12:40

Check the simple things first

I know it may sound silly but check the invoices are made out to your client, not someone else. If he is a sole trader then maybe they are made out to his own name not the trading name. Also check the invoice refers to cars sold after the registration date.

If it is none of the above and you have asked the inspector for clarification which has not been suppliedn then appeal the assessment.

Always make sure that you get a full written explanation of everything that the inspection has shown is incorrect or disallowed. That way you have a chance to refute whatever has been found.

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By SimonP
27th Jun 2011 14:07

Do not automatically lie down and roll over.

Quite simply, and this goes for any adverse HMRC decision, ask for the reasoning behind the disallowance, in writing, supported by statutory references, where necessary, in order that you may then check the validity of their disagreement.

I have never accepted an HMRC ruling unless I have been able to ascertain that they are totally correct or it has been a battle not worth fighting.

On occasion it does take a stubborn and patient approach but over the years, I have saved many thousands of pounds for clients with this attitude. For an example, see a thread I started in January 2010 [http://www.accountingweb.co.uk/anyanswers/tax-enquiry-use-home-office] which resulted in a win for the client.

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By DMGbus
29th Jun 2011 14:13

INVOICE/RECEIPT

The terminology INVOICE/RECEIPT makes me wonder if the HMRC officer has concerns about a possible duplication situation arising.

So, an INVOICE could be issued followed by a RECEIPT for the same purchase.  Consequently reclaiming VAT twice on the same purchase could arise.

This should be controlled / easily spotted by the supplier complying with the invoicing requirements that state that all tax invoices to be sequentially numbered. 

It is bad and amateurish practice in my opinion to issue documents described as "INVOICE/RECEIPT".  

A (tax) invoice and a receipt can be two quite different things.  an invoice records the supply and a receipt records the payment for said supply.  Maybe the supplier has their own reasons the chosen terminolgy.  Maybe the client has been potentially recovering VAT twice on individual purchases as a result.

Let's see what the HMRC officer says specifically is the problem (as in follow the good advice to seek a writen reason for rejecting the invoices as evidence of input tax having been incurred).

 

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