VAT input tax: Record the right information

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In the first of a three-part series on practical input tax issues, Neil Warren explains how a business can still claim input tax even if it can’t produce a tax invoice to HMRC.

Evidence to claim input tax

The main document needed to claim input tax is a tax invoice that complies with the legislation concerning the contents of a VAT invoice (VAT Regulations: SI 1995/2518, Reg 14). The invoice should include all of the following information:

  • Name, address and VAT registration number of the supplier
  • The name and address of the customer, along with a description of the goods or services being supplied
  • A unique identifying number (it should be sequential when issued by the supplier)
  • A time of supply (tax point) – this will be the date when the customer can claim input tax unless they use the cash accounting scheme, in which case the payment date becomes relevant
  • The total amount chargeable excluding VAT and a separate amount for the VAT. If the total value of the supply is less than £250, then a less detailed tax invoice can be issued (VAT Notice 700, para 16.6)

Will HMRC accept alternative evidence?

A common question often asked by clients is: ‘can I claim input tax without a tax invoice?’ The answer is yes, as long as a bundle of documents is held that enables the following questions to be answered:

  • Has VAT been paid to a ‘taxable person’?
  • Is there evidence of a supplier VAT number?
  • Does the expense in question relate to the business that is seeking to claim input tax?

The requirement for HMRC to consider alternative evidence has legislative force: VAT Regulations, SI 1995/2518, Reg. 29(2). HMRC’s internal guidance gives the following summary of the department’s position:

Where claims to deduct VAT are not supported by a valid VAT invoice HMRC staff will consider whether or not there is satisfactory alternative evidence of the taxable supply available to support deduction. HMRC staff will not simply refuse a claim without giving reasonable consideration to such evidence. HMRC has a duty to ensure that taxpayers pay no more tax than is properly due. Nevertheless this obligation must be balanced against a duty to protect the public revenue ” (VAT Input tax manual VIT31200).

Examples of alternative evidence

To give some examples, most supplies of goods or services will probably involve correspondence with the supplier; there may be a contract document, order form (often by email), delivery note and supplier statement.

However, an important question that an HMRC officer would ask is: “Why couldn’t the customer ask the supplier for a copy tax invoice?”

That copy invoice would solve all the VAT record issues. The main reason for not being able to obtain a copy invoice would be where the supplier had ceased to trade and can no longer be contacted. In that case, documentary evidence to support the supplier’s absence is also useful.

HMRC issued a policy document in 2009 summarising the approach that a business should adopt when it is claiming input tax without a tax invoice, and it is still quoted in HMRC’s internal policy manuals so has stood the test of time.

Self-billing pitfall

Many businesses who buy in small amounts of work from numerous suppliers claim input tax on self-billed invoices they issue to those suppliers or subcontractors. This is a common procedure in the construction industry, but also in media and publishing where variable amounts of royalties are paid to artists and authors.

It is important that a regular check is made to ensure the subcontractors are still VAT registered and accounting for output tax on these documents.

A useful case to review is GB Housley Ltd v HMRC [2016] EWCA 1299, which the Court of Appeal eventually ruled in the taxpayer’s favour in December 2016.

Full details about the self-billing rules are given in VAT Notice 700/62.

About Neil Warren

Neil Warren

Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.

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17th Nov 2017 12:49

Practical hint.

Never ever tell a client that they can claim input tax without an invoice! Yes I am aware that you can claim with the correct evidence - but the client does not need to know this. You may find that next quarter you have nothing but hassle trying to get duplicates and copies.

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By cfield
20th Nov 2017 11:50

Sometimes all you have is an item on a bank or credit card statement. This is where the alternative evidence we are forced to rely on can get stretched to breaking point.

This often happens with online orders where the client fails to print the receipt, or where they buy goods on a card in-store rather than using their account and then lose the receipt.

If it's a regular supplier with a known VAT number and the goods purchased couldn't have been for anything other than the business, then I would be inclined to claim the input tax, although I'm sure HMRC would argue the evidence was insufficient if they ever found out.

It's a real pain in the neck though as it holds up the bank recs and often means asking suppliers for receipts based on little more than the date and amount. Not easy when they do literally hundreds of sales every day. Even when you have an account with them it can be difficult.

Thanks (1)