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