Can VAT be reclaimed in this case? (Exporter)

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Hello,

I'm an exporter (a sole trader) of fashion items from the UK to non-EU country. The VAT refunds from HMRC is my source of profit.

Recently, HMRC did a VAT compliance check and informed me that I couldn't claim most of my VAT to date because I was using someone else (my husband's credit card) for the purchases. This is regardless of the fact that the VAT invoices I provided are under my name and address. I've explained to the compliance officer why I am using a credit card that belongs to my husband: I was out of work for a good couple of years after my second child was born. Hence, he is the one with a better credit history/income. 

I tried to run my business as correctly as I could, so when I started back in 2017, I hired a chartered accountant to advise me with the VAT filing, as I was fairly new to this game. They never mentioned anything about my purchases using someone else's card; all they cared about was valid VAT invoices being logged in and the VAT being the right amount.

HMRC conducted a VAT check at the beginning of 2019, which I passed—they only asked me for a few samples of VAT invoices for a certain period. 

In July 2023, however, they asked much more detailed questions, not just about invoices but also about payment of those invoices. I paid all of my purchases via Paypal (it's neater and easier for the bookkeeping). A few credit cards are linked to my PayPal, two of which with the highest limit, belong to my husband or jointly with my husband as the primary cardholder (the statement will come out all in his name).

Now, looking back, if I knew that it was such a big deal whose card it belonged to when making the payment for me to reclaim my export VAT, I would've easily applied for a credit card myself as soon as I was eligible - but this is something that never came across my mind as anyone, not even my accountant, seemed to mention/concerned about it before (they asked for my bank card statement before as anti-money laundering compliance, so they certainly know it was under my husband's name). On the other note, the payment for shipping (DHL direct debit), and other cost also come from our joint account, with my husband as a primary account holder.

Now, I found myself in a difficult situation, owing HMRC six figures in tax just because I was using my husband's credit cards. My tax advisor seemed to suggest that I should appeal or even take this to court. I want to know if others have been in my shoes before or whether any of you have advice for me. Many thanks,

Mamamia

 

Replies (51)

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JCACE
By jcace
05th Apr 2024 18:07

Listen to your adviser. If everything is as complete and straightforward as you have set out, I see no reason why the source of your payment should exclude a reclaim of input VAT. Maybe there's additional reasons, but your adviser should be best placed to deal with this.

Thanks (1)
Replying to jcace:
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By mamamiainlondon
05th Apr 2024 18:26

jcace wrote:

Listen to your adviser. If everything is as complete and straightforward as you have set out, I see no reason why the source of your payment should exclude a reclaim of input VAT. Maybe there's additional reasons, but your adviser should be best placed to deal with this.

Yes, he told me he'll call me on Monday. He is on holiday at the moment.
He did mention the same thing as you that he didn't see why the payment source should exclude a reclaim of input VAT. Perhaps, there is a change of law that we are not aware of?

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DougScott
By Dougscott
05th Apr 2024 18:09

Are you trading as a company or an individual?
Do you have a seperate business account?
Do you pay your husband's credit card bill from the business account - if not how do you pay?

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Replying to Dougscott:
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By mamamiainlondon
05th Apr 2024 18:20

Dougscott,

I am a sole trader using a personal account. In my line of business, most of the fashion retailer doesn't like dealing with other businesses as they want to keep the exclusivity of their goods.

I am supplying to a single client in asia that runs a concierge business. She pays me into my account in UK at the end of every month. And then I use that to pay for all the credit cards that are due.

Thanks (0)
Replying to mamamiainlondon:
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By David Ex
05th Apr 2024 18:52

mamamiainlondon wrote:

I am a sole trader using a personal account. In my line of business, most of the fashion retailer doesn't like dealing with other businesses as they want to keep the exclusivity of their goods.

Not sure what you mean. Anyway, you are getting compliant VAT invoices from your suppliers, aren't you?

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Replying to David Ex:
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By mamamiainlondon
05th Apr 2024 19:59

Hi David_Ex.

Apology for not making myself clear. I mean, I am a sole trader and not operating with a business banking account.

My export occasionally includes big brands like Dior, Gucci, Prada... and as I learned through experience, these big brands do not like you exporting their stuff for resell. I believe it is not illegal, but it is not aligned with their T&C. Buying with a personal bank card will less likely make them suspicious and think you are getting it for your personal consumption. I hope this explains my point better :-)

And yes, I got the valid VAT invoices from the stores where I source my items. Most of them are quite happy to provide it for me.

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Replying to mamamiainlondon:
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By David Ex
05th Apr 2024 20:15

mamamiainlondon wrote:

And yes, I got the valid VAT invoices from the stores where I source my items. Most of them are quite happy to provide it for me.

Fair enough. HMRC shouldn’t have a problem on that front then.

Thanks (1)
Replying to David Ex:
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By mamamiainlondon
05th Apr 2024 20:50

That's what I thought. But they said this in their letter to me.

"As the majority of the invoices provided are in the name and address of another person, this does not allow you to reclaim the input tax, as they do not comply with VAT Regulation 14(1)(e) as the name or address to whom the goods were supplied is not you or your business."

This is very odd, as my invoices are all under my name as both billing and shipper. There are about 600-800 invoices to look at for each quarter. I got a feeling the HMRC person who dealt with this only checked my Excel file summary (which summarises which invoice from which shop for how much VAT/Total, not the invoices themselves) and then went straight to the bank card statements, which is where she/he saw my husband's name.

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Replying to mamamiainlondon:
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By taxdigital
06th Apr 2024 11:07

Respondents on here can only speculate as to what could have or would have happened. HMRC's foot soldiers that go around inspecting VAT records aren't generally clued up on many things particularly accounting and anything outside what HMRC say in their staff manuals. So, what the bloke said over the phone or in person is immaterial. Did you receive a letter from HMRC denying the input VAT claim VAT quarter by quarter? If yes, on what grounds did they deny the credit and what specific reference is there to the law?

HMRC obviously have no right to decide how a business (sole trader or otherwise) should go about financing their input costs.

However, to add to one of the previous respondent’s comments,”‘input VAT’ means VAT on the supply to him of any goods or services used or to be used for the purpose of any business carried on or to be carried on by him” (s.24 VATA 1994).

In the light of the following do you think you operate as a business, whether as a sole trader or otherwise?
[quote=mamamiainlondon]

Dougscott,

In my line of business, most of the fashion retailer doesn't like dealing with other businesses.

I am supplying to a single client in asia that runs a concierge business. She pays me into my account in UK at the end of every month. And then I use that to pay for all the credit cards that are due.

[/quote
Do you think the way you operated gives HMRC enough ammunitions to argue that the items you bought were for your personal use? This is because you’re entitled a credit for the input VAT paid only when it is attributable to taxable supplies made in furtherance of your business (s.26 VATA 1994).

So, in summary, your adviser is the one better placed to comment on this further. Whatever it is, based on what I read on here, you do have grounds to fight on, perhaps successfully.

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Replying to taxdigital:
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By mamamiainlondon
06th Apr 2024 11:31

Thank you Taxdigital,

The HMRC said specifically as I quoted above:
"As the majority of the invoices provided are in the name and address of another person, this does not allow you to reclaim the input tax, as they do not comply with VAT Regulation 14(1)(e) as the name or address to whom the goods were supplied is not you or your business."

The thing is, all 600+ invoices I provided for them are on my name and address. I don't know where they got the idea it was 'another person' e.g my husband. Then when they mentioned about invalidating all the VAT claim where the source of payment was his credit card - it occurred to me, that probably HMRC had no time to inspect 600 invoices.

I don't think people will consider buying 20+ bags, nearly 500 pieces of clothing, and dozens of shoes each month, all different sizes, for personal use. But again, you might be right. HMRC's mind can sometimes be unpredictable.

Also, I have a DHL business account, through which I send these purchased items every week to my client. These invoices have also been provided to HMRC. The value declared is exactly as I bought them at the shop (my client is taking care of the customs duty on arrival), so HMRC can see that I am truthfully sending them out of the country.

Thanks (0)
Replying to mamamiainlondon:
RLI
By lionofludesch
06th Apr 2024 12:46

mamamiainlondon wrote:

The HMRC said specifically as I quoted above:
"As the majority of the invoices provided are in the name and address of another person, this does not allow you to reclaim the input tax, as they do not comply with VAT Regulation 14(1)(e) as the name or address to whom the goods were supplied is not you or your business."

From what you say, that's clearly nonsense. It did cross my mind that you have a trading style which didn't appear on the VAT registration. Maybe you could confirm whether this is so.

On a pedantic point, surely some of the shoes are the same size.

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Replying to lionofludesch:
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By mamamiainlondon
06th Apr 2024 13:33

You are right. My trading style is not usual, as I don't hold stock. I only buy items according to my client's requests.

Ah yes, some shoes will be the same size :-) But even one of the suppliers, Loro Piana, at one point, warned me that I couldn't purchase more than three sizes (they held a record of what size I purchased online). I can't even buy 3 of the same size at once. If I want to break this barrier, I must source the items from a multi-brand store like Harrods or Selfridges. I am also told that one can only buy 1 Chanel bag a month. Louis Vuitton (online) is also limited to 2 bags every six months. This wasn't a rule written anywhere - I knew it only because my online transactions were constantly rejected. I called their SA and then they explained why.

Thankfully, I only have to deal with these brands once or twice a week. Most other suppliers are regular, high-street brands or middle-sized companies that are happy to have a customer who is acting like a shopping addict.

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Replying to mamamiainlondon:
RLI
By lionofludesch
06th Apr 2024 13:52

mamamiainlondon wrote:

You are right. My trading style is not usual, as I don't hold stock. I only buy items according to my client's requests.

By trading style, I mean something like "Ann Exporter", trading as "Clothes R Us."

Thanks (0)
Replying to taxdigital:
RLI
By lionofludesch
06th Apr 2024 12:41

taxdigital wrote:

Do you think the way you operated gives HMRC enough ammunitions to argue that the items you bought were for your personal use?

I'd be very surprised if that was even a consideration.

The general thrust appears to be a contention of a supply by an intermediate unregistered trader, viz. the husband.

Thanks (1)
Replying to lionofludesch:
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By mamamiainlondon
06th Apr 2024 13:38

My husband did jokingly offer a swap. I can do his work (He said, power point and zoom call is not a rocket science). And he can start selling women's fashion. I told him HMRC would be even more suspicious.

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By Paul Crowley
05th Apr 2024 18:27

There must be more to this than just using that credit card. If not then it looks ridiculous to me. Invoices in the correct name is the way that input VAT is justified, not method of payment.
HMRC usually act like a female dog if it is the other way around, as in paid by the trader, but name on invoice wrong.

Hindsight is a wonderful thing, but maybe look to operate through a company. I have a client that imports and sells to many countries, and my day one advice was to operate through a company. Eventually that did happen. She was reluctant because my fees would be higher, or at least that is how I understood it.
On small margins and with reliance upon VAT recovery: I would consider that limited liability is a critical decision to consider.

Hopefully Jason Croke will be along later. But he can only comment on what you have written.
From what I read here, I am with your advisor.

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Replying to Paul Crowley:
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By mamamiainlondon
05th Apr 2024 18:37

Hi Paul,

Thank you for your reply. I appreciate your idea about doing it under a company name instead. My accountant did mention it to me as well. However, my sole client in Asia refused this as she would have to be a registered trader to buy items from me (apparently that's the rule there). And to become a registered trader, there are a lot of things she can't sell. Some brands would like traders to seek permission first from the brandowner before start selling. This is despite the fact you are selling just 1-3 items of that brand in a month... or you are an owner of a large mall. So, for the sake of simplicity, at the moment, she is also a sole trader with an import license.

But yes, certainly, operating under a limited company will be ideal :-)

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By Paul Crowley
05th Apr 2024 19:31

DEFINETLY
do not talk to the VAT
Let the advisor do it
You explain it as if you are not in business and are making personal exports.

Thanks (1)
VAT
By Jason Croke
05th Apr 2024 20:11

Whilst I agree with all the other comments here and whilst a valid VAT invoice from a UK supplier should not be an issue...

From a purely legal perspective, husband is buying all the stock, so if he owns the stock then how does OP sell stock she doesn't own? Does husband sell the stock to OP? Obviously not, but HMRC are following the money and the OP is selling stock they don't own, if they don't own it, then they can't reclaim the input tax.

The right to reclaim input tax is on the basis the business bought the goods and sold or used them in making taxable supplies. Clearly OP is making taxable supplies (of zero rated exports) but the goods are not bought by the business so it therefore can't be input tax it can reclaim.

Dougscott asked a crucial question, how the OP settles husbands credit card. OP says they settle it at end of month, so how is that "settled"? Does OP transfer funds from sole trader account to hubby or is there just one big family current account that is both for personal and business use?

HMRC are open to alternative forms of evidence to support input tax reclaims https://www.gov.uk/hmrc-internal-manuals/vat-input-tax/vit31200 but the hurdle remains that husband bought the stock.

This issue is not time critical, it can wait for your Accountant to return from holiday, ask HMRC for a 2 week extension to allow you to prepare a response, you do this on your own and you'll owe HMRC £££, it needs a robust defence but depends on the precise nature of how OP and husband handle and document their financial affairs.

Thanks (1)
Replying to Jason Croke:
RLI
By lionofludesch
05th Apr 2024 20:28

Did the husband purchase the goods or did he provide finance to enable the wife to purchase the goods?

Can the husband produce invoices for the goods? I'm guessing no. On the other hand, the wife has dozens.

Thanks (2)
Replying to lionofludesch:
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By mamamiainlondon
05th Apr 2024 20:45

He provided finance to enable me to purchase the goods. I initially set up the business because having no family around and having two little kids to take care making it hard for me to return to work as a full-time engineer, as my work required me to be on-site.

Then, I found exporting goods is an excellent avenue to help with family finances and being a stay-at-home mom. I have two set of parents, from my husband's side and mine to support. So I can't afford to sit at home and do nothing. So this news from HMRC really came as a shock to me.

Thanks (0)
Replying to lionofludesch:
VAT
By Jason Croke
05th Apr 2024 21:54

lionofludesch wrote:

Did the husband purchase the goods or did he provide finance to enable the wife to purchase the goods?

Can the husband produce invoices for the goods? I'm guessing no. On the other hand, the wife has dozens.


Valid question/point.

Invoices say wife bought the goods, but credit card indicates husband bought the goods.

Whilst invoice is main document, payment "usually" indicates ownership. If I have an invoice addressed to my business but paid for by a third party, then are they really my goods? What is the agreement between me and third party that says they pay for it but I own it?

Not saying HMRC are wrong, just summising as to why HMRC are triggered by OPs situation.

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Replying to Jason Croke:
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By mamamiainlondon
05th Apr 2024 22:26

Yes, I think this is where all the confusion lies. Most of our bank accounts are joint accounts—for practicality's sake, this has been going on longer than a decade ago due to the fact that my husband is British and I am not, and I came to the country as his dependant. For a long time, banking was not on my side when it came to opening a new account. When I stopped working, it practically became nearly impossible as all the bills and proof of address were in his name.

Therefore my husband and I so used to treating all of our account as 'ours' including the the non-joint account. We paid each other bills and expenses.

However, for my business, I have proof that my client sent the payment to me, and I transferred it to my husband to make payment for his cards (because there is no way he can afford to pay that card with his salary). In fact, right now, after applying for a new current account, now I can make the transfer directly from my account to his credit card.

Again, I never thought that the banking name would become a stumbling block for claiming back export VAT. It just really irked me that this issue could be avoided so easily if only I knew.

Thanks (0)
Replying to Jason Croke:
RLI
By lionofludesch
06th Apr 2024 08:46

Jason Croke wrote:

lionofludesch wrote:

Did the husband purchase the goods or did he provide finance to enable the wife to purchase the goods?

Can the husband produce invoices for the goods? I'm guessing no. On the other hand, the wife has dozens.

Valid question/point.

Invoices say wife bought the goods, but credit card indicates husband bought the goods.

Whilst invoice is main document, payment "usually" indicates ownership. If I have an invoice addressed to my business but paid for by a third party, then are they really my goods? What is the agreement between me and third party that says they pay for it but I own it?

Not saying HMRC are wrong, just summising as to why HMRC are triggered by OPs situation.

Agree with what you say but, taking into account what we know, including facts posted after your post, I'd be confident of resolving this in the trader's favour. As, I'm sure, you would too.

Thanks (3)
Replying to lionofludesch:
VAT
By Jason Croke
06th Apr 2024 09:45

lionofludesch wrote:

Jason Croke wrote:

lionofludesch wrote:

Did the husband purchase the goods or did he provide finance to enable the wife to purchase the goods?

Can the husband produce invoices for the goods? I'm guessing no. On the other hand, the wife has dozens.

Valid question/point.

Invoices say wife bought the goods, but credit card indicates husband bought the goods.

Whilst invoice is main document, payment "usually" indicates ownership. If I have an invoice addressed to my business but paid for by a third party, then are they really my goods? What is the agreement between me and third party that says they pay for it but I own it?

Not saying HMRC are wrong, just summising as to why HMRC are triggered by OPs situation.

Agree with what you say but, taking into account what we know, including facts posted after your post, I'd be confident of resolving this in the trader's favour. As, I'm sure, you would too.


Agree that this should be fixable. If HMRC are just looking at a spreadsheet and statements then that's probably where the issue lays, shove some invoices in their face and that should move things in right direction.

Not helpful that there are replies and additional facts dotted all over this thread so it does look like my original post is out of context.

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Replying to lionofludesch:
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By Paul Crowley
06th Apr 2024 15:45

Same here.
This has got so confused, that it is difficult to get to the real facts.
But now we have just a tiny extract of what was put into writing by HMRC, and that says something that is factually wrong.
What the HMRC foot soldier said is irrelevant. All that matters is what was written.
If the trader's name is on the VAT invoices, then that is all that matters.

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Replying to Jason Croke:
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By mamamiainlondon
05th Apr 2024 20:37

Thank you, Jason, for providing the input. I certainly had never seen it this way, so this is something I must bear in mind in the future.

There is this one main credit company, Amex, that I used to make most of my purchases, simply because the limit is very high. My husband is a primary credit card holder on this card, I am secondary. So, even if the purchase made with my card, under my name and address, it will still appear as his.

About how I pay: My client deposits the money into my HSBC account at the end of every month, and I use the same account to pay my husband's credit card.

And pardon my ignorance, but what is 'OP'?

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Replying to mamamiainlondon:
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By FactChecker
05th Apr 2024 20:56

Shorthand for Original Poster (which in this thread is you) ... tends to be used here to avoid the cumbersome wording which would otherwise be necessary to avoid offence when the gender of an anonymous poster is, by definition, unknown.

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Replying to mamamiainlondon:
DougScott
By Dougscott
06th Apr 2024 07:51

mamamiainlondon wrote:

Thank you, Jason, for providing the input. I certainly had never seen it this way, so this is something I must bear in mind in the future.

There is this one main credit company, Amex, that I used to make most of my purchases, simply because the limit is very high. My husband is a primary credit card holder on this card, I am secondary. So, even if the purchase made with my card, under my name and address, it will still appear as his.

About how I pay: My client deposits the money into my HSBC account at the end of every month, and I use the same account to pay my husband's credit card.

And pardon my ignorance, but what is 'OP'?

So if yu are "joint" operatives of the Amex credit card account does that mean there is one Amex card in your husband's name and one in your name? If so why aren't you using the card in your name? From what you've said so far HMRC are claiming that your husband has a seperate credit card account and is paying for the goods and then you are buying them off him which could be how it appears to them. Anyway as others have said it is important your accountant responds robustly and you have provided him with all relevant facts.

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Replying to Dougscott:
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By mamamiainlondon
06th Apr 2024 08:21

I actually use my Amex card on my name. But because my husband is the primary credit card holder, all the statements appeared in his name regardless.

I've checked the VAT invoice requirement again for the VAT claim. It never mentioned where the fund should come from; it only mentioned that it needs a clear address, dates, VAT number of supplier, name and address of buyer (that matches my name and address in this case), clear description of goods, VAT rate, and VAT sum breakdown.

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VAT
By Jason Croke
05th Apr 2024 20:19

Oh, and having a VAT inspection never was nor will it ever be an audit or validation of your business VAT compliance. An inspection is a snapshot, viewed quickly and if nothing jumps out and punches HMRC straight in the face, then they'll close the file and move on, but it is not a stamp of approval, just means they weren't thorough enough first time around.

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Replying to Jason Croke:
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By mamamiainlondon
05th Apr 2024 20:54

I see. Thank you for highlighting that to me :-)
I'll update everyone with what my tax advisor and accountant said on Monday.

I really appreciate all the feedback and replies so far. Thank you.

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By I'msorryIhaven'taclue
06th Apr 2024 08:39

mamamiainlondon wrote:

I paid all of my purchases via Paypal (it's neater and easier for the bookkeeping). A few credit cards are linked to my PayPal, two of which with the highest limit, belong to my husband or jointly with my husband as the primary cardholder (the statement will come out all in his name).

"my Paypal...".

So you paid for all your purchases using your Paypal account. A Paypal account that's in your name?

Whenever I pay for something with my Paypal account then Paypal draws the funds, either from my bank account or from my credit card (I can choose). Let's suppose I changed my credit card to my wife's credit card; then, when I purchase something valuable for my (VAT registered) business via my Paypal account which in turn draws its funds from my wife's credit card, then I'd be in the same circumstances as yours.

For me, that would be me making the payment and my wife providing the funds. Along the lines Lion mentioned earlier, above. The important point being it's me contracting with and paying the supplier, regardless of whether my wife funds it by topping up my bank (or Paypal) account by debit or credit card, bank transfer, promissary note or cheque written on the side of a cow.

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Replying to I'msorryIhaven'taclue:
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By mamamiainlondon
06th Apr 2024 09:03

I will have to check precisely whose name on this. The last Paypal statement I downloaded contain no name, no address, only breakdown of transaction, dates, and sum.

So far, HMRC has never sounded too concerned about the name on the Paypal (as I think it could be anyone); you can link the Paypal account to anyone's credit card - it seems - regardless of the name on the Paypal account.

I don't know. Now I am so stressed out now. But I doubt I can do any years back when I started the business. I can only rely on my husband's credit card for at least the first 2 years. I got my own credit card in 2019, but the limit was only 7,500. Buying 3 designer bags would certainly blow the limit. Hence the story of why I am still using his credit cards. Even now, the limit on the credit card that I have (not the one that I own jointly with my husband), was only 15,000. May be I have to be more proactive in applying credit cards, now that this happens.

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Replying to mamamiainlondon:
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By I'msorryIhaven'taclue
06th Apr 2024 09:15

I have what Paypal call a commercial account (but in my own name, "F. Hoffman trading as I'msorryIhaven'taclue"); my wife has a "personal" Paypal account (solely in her name). The point being, a Paypal account has to be in someone's name.

For the avoidance of doubt, if the Paypal account is a "personal" Paypal account and not a commercial Paypal account that would make no HMRC/VAT difference in your case. The important factor is whose name the Paypal account is in (ie yours or your husband's name). Go log in and check... if it's in your sole name then you've a potential match-winner!

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Replying to I'msorryIhaven'taclue:
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By mamamiainlondon
06th Apr 2024 09:43

I remember it being a personal account, for sure. I never applied for trading/business accounts as my payment does not normally come from Paypal but from overseas transfers directly into my HSBC account.

Is there any benefit to having a commercial account instead of a personal account if one is not receiving money or issuing invoices on PayPal? I am just curious, as I have considered it in the past, but I am worried there are unknown, irreversible repercussions (such as the card link to it having to be a business credit card/business banking).

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Replying to mamamiainlondon:
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By I'msorryIhaven'taclue
06th Apr 2024 11:08

My commercial Paypal account has my business bank account and personal credit card linked to it - I don't think Paypal mind too much. The commercial account has higher transaction limits than the personal account.

Back to your case: regardless of whether your Paypal account is commercial or personal flavour, the key thing is whose name it's in. If yours, then I believe you've used your own funds to pay for your stock purchases and should be able to repulse HMRC; if your husband's then you're back to square 1 in the same position as if you'd paid using your husband's AMEX cards. SFAIK Paypal don't issue joint accounts, so let's not go down that rabbit hole.

Log in to Paypal and that will tell you just whose name the account is in.

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Replying to I'msorryIhaven'taclue:
RLI
By lionofludesch
06th Apr 2024 15:11

Classic WISWTW?

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By mamamiainlondon
06th Apr 2024 09:51

I want to thank everyone who has been so kind in sharing their thoughts/advice so far. There are certainly some steps that I will take note of to make VAT reclaim smoother (like owning my own high-limit credit card). Sadly, this will mean that I won't be able to make good sales in the foreseeable future—not because of a lack of demand—but because of cash flow limitations. I guess this is the hard reality of what I had to accept.

As for now, I'll see what my tax advisor and accountant would say, and I'll update everyone on this hopefully on Monday.

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By taxdigital
06th Apr 2024 13:39

mamamiainlondon wrote:

"As the majority of the invoices provided are in the name and address of another person, this does not allow you to reclaim the input tax, as they do not comply with VAT Regulation 14(1)(e) as the name or address to whom the goods were supplied is not you or your business."

.

I would think that the letter you refer to has no force of the law yet. It appears to be the HMRC caseworker’s musings in written form. Reg 14(1) is about what should all be there on a valid input VAT invoice. It’s Reg 13 that creates an obligation on a supplier to provide you with a valid VAT invoice which will then support your credit claim. Even if you do not possess a valid VAT invoice still there are circumstances (Reg 29) in which input VAT credit can be claimed. In a recent case (Tower Bridge v HMRC) whilst the input VAT credit was denied, you might find some observations in there useful. In other words, even where valid invoices are missing HMRC do have discretion to allow input VAT credit.

I would leave it there and let the adviser take it up head on with HMRC.

Reg 13
https://www.legislation.gov.uk/uksi/1995/2518/regulation/13

Reg 14(1)
https://www.legislation.gov.uk/uksi/1995/2518/regulation/14

Reg 29
https://www.legislation.gov.uk/uksi/1995/2518/regulation/29

TOWER BRIDGE GP LIMITED v HMRC
https://www.bailii.org/ew/cases/EWCA/Civ/2022/998.pdf

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Replying to taxdigital:
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By mamamiainlondon
06th Apr 2024 14:04

I will have a look at these, thank you so much :-)
My accountant and I believe that 90% of those 600 receipts are valid VAT invoices, showing my name, address, VAT number of the supplier, dates, and detailed description of the items I bought, and the VAT breakdown.

There are handful that missing VAT breakdown, or missing my name, I already exclude to the best of my checking skill ability. My issue that HMRC brought to the table is that I am using a credit card that has my husband's name on the statement and not mine. Therefore, they claimed he was the one who was buying the goods and not me.

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Replying to mamamiainlondon:
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By taxdigital
06th Apr 2024 14:26

mamamiainlondon wrote:

HMRC brought to the table is that I am using a credit card that has my husband's name on the statement and not mine. Therefore, they claimed he was the one who was buying the goods and not me.

That can’t stand up to legal scrutiny if you can prove that if you, as a sole trader, are the one who contracted with the suppliers who sold the goods to you, and are the one liable for the payment. The husband’s card being a mere source of finance.

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Replying to taxdigital:
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By mamamiainlondon
06th Apr 2024 14:45

My husband has a full-time job. He is very busy, clocking 60-70 hour a week for his work. He is working from home though, only 2-3 days a week in London. (This is also the reason why I have to stop working in the office. We need a dependable 'chauffer' at home to run random errands and school runs).

Since 99% of my purchases are online, it is hard to prove whether it was me or him who ordered them. Except HMRC accepts that all of the sales invoices went to my email address and not his. There were a few occasions when I ordered my stuff from WhatsApp chats with the store's personal shopper, which linked to my phone and laptop. That would've been clearer that it was me.

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By Matrix
06th Apr 2024 13:46

It is great that you have a tax adviser and do come back with how this progresses. How you choose to finance your business is not HMRC’s concern.

If you are not able to reclaim the VAT then are they going to retrospectively register your husband for VAT or are they going to argue that you are in partnership?!

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Replying to Matrix:
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By mamamiainlondon
06th Apr 2024 14:10

My accountant and tax adviser have been a great help since the start of the compliance check in July 2023. But, given what is at stake: potentially losing my house, cars and other things if I had to pay this six-figures tax that summed my profit in the past four years, I would like to know others' experience or advice.

I am unsure if registering my husband for VAT will help, as all the sales invoices from all the goods I purchase are in my name. I don't know about how partnership work; perhaps have to meditate on google tonight.

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Replying to mamamiainlondon:
RLI
By lionofludesch
06th Apr 2024 14:23

mamamiainlondon wrote:

I am unsure if registering my husband for VAT will help, as all the sales invoices from all the goods I purchase are in my name.

Indeed.

HMRC would have more of a case against him than against you.

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Replying to mamamiainlondon:
VAT
By Jason Croke
07th Apr 2024 09:59

mamamiainlondon wrote:

My accountant and tax adviser have been a great help since the start of the compliance check in July 2023. But, given what is at stake: potentially losing my house, cars and other things if I had to pay this six-figures tax that summed my profit in the past four years, I would like to know others' experience or advice.

I am unsure if registering my husband for VAT will help, as all the sales invoices from all the goods I purchase are in my name. I don't know about how partnership work; perhaps have to meditate on google tonight.


Not convinced you have an Accountant and a tax advisor....inspection started June 2023 and now almost a year later still dragging on?

I suspect your business model is perhaps a problem. I've seen this business type loads of times, usually buying iPhones or Porchses in bulk as a "consumer", but then selling them on the grey market..which is fine as a side hustle but then the retailers get wise so then you start buying iPhone and Porsches in someone else's name to get around the retailers blocking you, invoices might be in your name or someone else's or nobody's name (receipt from Harrods will not have customer name on it so who bought thr bag?)

Wait for your tax advisor and accountant to return from holiday as they will be best placed to fix this, it's way too complicated for this forum. If there is £100k upwards on the line then you need to invest in advice to fix this and if its been going on since June 2023 then you can wait a bit longer for your advisors to resolve this.

Useful case below which sounds similar to your setup but with iphones instead of bags but the concepts and legal approach are similar.

https://www.casemine.com/judgement/uk/5b35bf9b2c94e01ed2551867

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Replying to Jason Croke:
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By FactChecker
07th Apr 2024 14:16

Wow, that case was an interesting (if lengthy) read ... thanks, Jason.

OP: you may not enjoy reading it as much as I did - but you can cut to the chase by going to sections 153-154 at the end.
It backs up all the points to which others have been referring, but wraps it all up as a whole ... admittedly for a different case, but with enough commonalities for you to apply the key points to your own situation.
Or of course, speak to a suitably experienced VAT professional for formal advice.

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Replying to FactChecker:
VAT
By Jason Croke
07th Apr 2024 15:33

FactChecker wrote:

Wow, that case was an interesting (if lengthy) read ... thanks, Jason.

OP: you may not enjoy reading it as much as I did - but you can cut to the chase by going to sections 153-154 at the end.
It backs up all the points to which others have been referring, but wraps it all up as a whole ... admittedly for a different case, but with enough commonalities for you to apply the key points to your own situation.
Or of course, speak to a suitably experienced VAT professional for formal advice.


Yes, sorry for the lengthy case but well done for grinding through it, weather so bad, it's probably the highlight of the weekend!
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Replying to Jason Croke:
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By mamamiainlondon
07th Apr 2024 14:59

That's an interesting case, thank you.

It's slightly different in my case as I am buying just on my own. If the store disallows me to buy because I reach the limit, I usually stop. I am way too wary of getting blacklisted, as you rightly pointed out. And besides high-end brands, in fashion, there are a lot easier, cheaper options from suppliers like Karen Millen, John Lewis, Mark and Spencer... that aren't fussy if you buy 10-20 items in one go.

Pardon if I get the timeline wrong. They inspected May-July 2023 period, the letter of inspection I received in Aug 2023. Perhaps the length of the investigation also due a few hurdles along the way. First, the fact that my tax adviser (who was being engaged by my accountant, so need time to put him up to speed) only available nearly a month after the deadlines. So we've asked for an extension and HMRC had agreed. Then, a good few weeks after the first batch of invoices, 600+ of them, HMRC requested credit card statements... and then a few more weeks, requested a spreadsheet that linked the credit card statement to the purchase... and then after requesting bank statement. Mid-Feb is when they finally got everything. There are back and forth question small question regarding PAYE, trading address, etc and such before I got the letter from them last week.

Also my receipts from Harrods/Selfridges will have a name. They are not a till receipt. It's an online purchase, and the format looks a bit different. I pay them remotely using payment link shared by the personal shopper. It also has my address, as they need to send it to me. But this kind of transaction is only 3-4 of many.... most of mine is just a regular online transaction with no SA involvement.

But I see where you are coming from and why HMRC are concerned with this type of business. My tax advisor mentioned to me about 'daigou' (buying on behalf) which had become a problem for money laundering and exploiting the VAT refund in the UK.

https://www.nationalcrimeagency.gov.uk/who-we-are/publications/445-chine...

And precisely because the stake is so high for me that I am seeking others' perspective here, to which I am very grateful for.

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