VAT Director Rayner Essex
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VAT: Alternative forms of evidence

Some businesses don’t pay enough regard to the importance of what documents say or even to retaining those documents. Jason Croke uses the Kardi Vehicles case to explain why good documentation is vital for accurate VAT records. ​

3rd Sep 2020
VAT Director Rayner Essex
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Fiat vehicles on the public parking. On the first plan we see the Fiat Tipo compact cars. This model was debut in 2015 on the market.
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Kardi Vehicles Ltd (TC07738) designed its financial processes in a way to suit its niche business model but conflicted with the VAT legislation and caused a number of headaches.  

The company purchased new cars from UK dealers and then exported them to Ireland, as there was a decent margin to be had. 

UK dealers are reluctant to sell to buyers who are going to export, so it is common practice for the buyer to use various third parties to buy the vehicles to not alert the dealership of potential multiple purchases being made by a single buyer or trader.

Accurate records are vital

Keeping accurate records is half the battle of compliance, as is cooperating with HMRC’s requests for paperwork. But reliance upon alternative forms of evidence, in the absence of valid VAT invoices, is a journey fraught with risk and a high hurdle for the taxpayer to overcome.

There are three strands to the case;

  • lack of valid VAT invoices,
  • lack of proof of export (of goods or services it was unclear which); and
  • an amount of money in the bank which was either a loan or turnover.

The taxpayer simply did not hold valid VAT invoices, as the invoices were addressed to third party persons. It had to rely upon HMRC’s discretion to accept alternative evidence, as per HMRC internal guidance at VIT31200

That discretion is not easy to achieve, even with alternative supporting documentation, which in this case, was severely lacking.

Document dumping

The taxpayer did not help matters by drip-feeding documents to HMRC over a period of time.

The first-tier tribunal (FTT) noted the taxpayer often dumped large piles of paperwork on HMRC, expecting HMRC to audit the documents in order to conclude alternative evidence existed. This is not the job of HMRC. 

In fact, that action may have been seen as swamping HMRC with too much data to hide the lack of documentation.

The FTT was also asked to decide the case based on the concept of third-party invoices, as there was little in way of actual documents in the tribunal bundle.

Export evidence

On the matter of export, the sales invoices were vague and did not always detail what was being supplied. For example, the taxpayer argued it was car hire, but invoices did not specify length of hire, dates of hire or often the model of car.  

The VAT status of the supply is determined by the supply being made, where that supply is vague, how does the taxpayer know the correct VAT treatment has been supplied?

Unexplained funds

Finally, the taxpayer’s bank statements included an amount of £341,960 which they first argued was a director’s loan, and then later, a loan from a friend. 

However, no evidence was ever presented by the taxpayer to support either view and the taxpayer lost on all three strands of the case.

Learning points

The lessons here are that retaining accurate records – be they paper or digital – are critical to VAT compliance. Ensuring the paperwork is clear and complies with VAT rules is also a key takeaway.  

Finally, how a taxpayer deals with HMRC can play a significant part in the outcome. A lack of documents and answers that change does not inspire confidence, and ultimately a taxpayer needs HMRC to be confident in the records being presented for inspection. 

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