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VAT | AccountingWEB | Queried VAT invoice proves sufficient
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Queried VAT invoice proves sufficient on appeal

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Amy Chin looks at a VAT case where a business accused by HMRC of not providing enough detailed information had in fact given the right amount.

7th Jun 2024
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All too often cases come across my desk and I question whether HMRC is directing precious resources and energy into quite the right pursuits. This unsurprisingly short (and sweet!) FTT judgement is firmly in that category.

Input VAT claim rejected

The appeal involved three purchase invoices received from a subcontractor on which the taxpayer, Fount Construction Limited (FCL), tried to claim input VAT. HMRC disallowed the claim on the grounds that the description of the work performed by the supplier was not detailed enough to meet the requirements of the VAT Regulations 1995.

The description on the contested invoices read "Building works at the above", with the address of a building site in a box above labelled "Job address".

They also set out that VAT was calculated at the standard rate and showed a VAT-exclusive subtotal, the VAT amount and a gross total.

The total amount of VAT reclaimed was £15,218.59.

Rather than use the powers available to request further information about the nature of the work performed by subcontractors to corroborate that the services were standard rated, the investigating officer jumped straight to disallowing the claim, leaving the taxpayer stuck between a rock and a hard place – accept HMRC's refusal to refund the input VAT or embark on a lengthy and potentially costly appeal.

Luckily (as it turned out) for FCL and future taxpayers in a similar bind, the company chose to challenge the tax authority and that appeal was successful.

Appeal allowed

HMRC argued that the regulations require that invoices from a supplier must have a ‘description sufficient to identify the goods or services supplied’ and that description must be detailed enough to confirm ‘that the VAT had a business purpose and was charged at the correct rate'.

Its counsel submitted that the brief description on the invoices did not allow HMRC to tell whether the nature of the work was standard rated, zero rated or reduced rate.

Referring to a previous decision in Deadoc Construction Ltd, the FTT agreed with the previous judge's conclusion that the detail required on an invoice depended on the matter involved.

In the FCL case the judge concluded that a general short description of the nature of the services, along with some identifying information such as the name of the site or date of the works, would be sufficient to meet the VAT regulation requirements.

Further the judge commented that HMRC has wide-ranging powers to seek supplementary information in relation to the supply and refuse input tax recovery if such information is withheld.

Allowing the taxpayer's appeal, Judge Frost pointed out: "The invoice is the gateway into any enquiries by HMRC, rather than a repository for the answers to any questions that might be asked.”

Comment

As Mr White, representing FCL, pointed out, the description on an invoice does "not need a novel" to be valid for VAT purposes. That the FTT agreed with this and upheld the appeal is good news not only for those in the building industry, but a wide range of businesses including the accountancy profession where simple descriptions such as "ongoing professional services" are commonplace.

It is open to HMRC to query the validity of input VAT claims and require additional information if invoices are found to be too brief. HMRC will investigate if an invoice doesn't seem to meet the requirements of The Value Added Tax Regulations 1995 Regulation 14, including:

(1)(g) a description sufficient to identify the goods or services supplied; and

(h) for each description, the quantity of the goods or the extent of the services, and the rate of VAT and the amount payable, excluding VAT, expressed in any currency.

It is wise to be mindful of this when submitting claims, if only to save the hassle of an HMRC challenge.

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Replies (8)

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Rob Swan
By Rob Swan
08th Jun 2024 07:42

"I question whether HMRC is directing precious resources and energy into quite the right pursuits."

I think most of us are with you on that point Amy ;)

Thanks (5)
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By Paul Crowley
08th Jun 2024 21:57

It is only the FTT, so not really helpful as all as precedent.
My guess is that the supplier is no longer available, and did not declare or pay the VAT.

Thanks (1)
Replying to Paul Crowley:
Donald MacKenzie
By Donald MacKenzie
10th Jun 2024 08:34

I agree that this cannot be the whole story.
Surely HMRC would just have asked for more details unless there was an issue that the sub-contractor had not submitted returns and paid related VAT.

Thanks (1)
Replying to Donald MacKenzie:
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By SkyBlue22
10th Jun 2024 13:11

I've had construction clients questioned on this fairly recently. HMRC seem to be particularly upfront when they think there is a contractor VAT issue because they ask about specific suppliers.

Thanks (1)
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By cbp99
10th Jun 2024 10:21

Could FCL, on challenge by HMRC, not simply have requested a credit note against the original invoice, and replacement with a new invoice with more detail, such that satisfaction of Reg14 was not in doubt?

That is a question, btw!

Thanks (1)
Replying to cbp99:
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By kim.shaw-and-co.com
10th Jun 2024 17:45

cbp99 wrote:

Could FCL, on challenge by HMRC, not simply have requested a credit note against the original invoice, and replacement with a new invoice with more detail, such that satisfaction of Reg14 was not in doubt?

That is a question, btw!

Aside from the issue of relevant tax point(s), that would have put them in the position of potentially being treated as overclaiming input tax in respect of the original invoice and only making a valid claim in respect of the replacement. They would at least be liable for interest if no VAT652 had been filed or no explanatory disclosure made.

Why would they expose themselves to that when it is clear their acceptance of the VAT invoice as sufficient evidence to support their original claim (assuming VAT was due at the rate charged) was perfectly reasonable ? All HMRC needed to do if they had any doubts is request more detailed information about the works on which VAT was charged by their supplier. As the FTT rightly decided.

Thanks (1)
Replying to kim.shaw-and-co.com:
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By cbp99
11th Jun 2024 14:29

@kim.shaw-and-co.com
Thanks for your reply to my question.
I agree entirely with your second paragraph. Re a credit note and replacement invoice, I was assuming the tax point would remain unchanged (time of supply), hence no overclaim.
Just curious, that's all!

Thanks (1)
Replying to cbp99:
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By kim.shaw-and-co.com
11th Jun 2024 21:18

cbp99 wrote:

@kim.shaw-and-co.com
Thanks for your reply to my question.
I agree entirely with your second paragraph. Re a credit note and replacement invoice, I was assuming the tax point would remain unchanged (time of supply), hence no overclaim.
Just curious, that's all!

If the replacement CN and invoice bore the same tax point date as the original invoice they likely wouldn't "fix" anything as regards addressing the (spurious) grounds on which the HMRC challenged the taxpayer's original claim for input tax at the time it was originally claimed.

If the credit note was attributed to the original invoice, would any amount of VAT included in it be treated as not constituting input tax for the same reasons following HMRC's approach ?

I think they did the appropriate thing in the circumstances, to be honest given there was nothing wrong with the original invoice raised. The provision of a detailed description of works is all it needed to back this up. HMRC need to be discouraged from approaching this sort of situation in the way they chose to.

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