The VAT officer was satisfied that there was no duplication of input tax and that only Bob’s Bathrooms had made a claim, but he still reduced the input tax claimed by that company.
Rather than dispute the rights and wrongs of the situation, I advised my client to accept the outcome and then claim input tax on the next VAT return of Antsy Builders and then in the same period, Antsy raises the sales invoice I mentioned to Bob’s Bathrooms and the situation is resolved: that is, a nil VAT payment for Antsy Builders and an input tax claim for Bob’s Bathrooms. The next VAT return period was only a few weeks away, so there was no major cash flow delay.
Was HMRC correct?
Bob’s Bathrooms did not have a proper tax invoice to supports its claim because the documents were made out to a separate company. We quoted the 1995 VAT Regulations, (SI 1995/2518, Reg 29(2)), which gives an HMRC officer the power to accept alternative evidence in the absence of a tax invoice, to show that VAT has been paid by a business on expenditure relevant to its taxable sales.
The VAT officer dismissed this legislation on the basis that Bob’s Bathrooms did have a tax invoice, so alternative evidence was not necessary. The problem was the invoice was addressed to the wrong company. In the end, it was not important because we got the result we were seeking.
However, I am confident that if the facts were heard by a VAT tribunal, then the administrative oversight of the wrong company being shown on the purchase invoices would be superseded by the fact that the VAT ‘belonged’ to Bob’s Bathrooms.
Watch that horse
This case study has a happy ending, but my key message is that the VAT issues of any deal need to be considered before it takes place, not after the horse has bolted from its stable!