Andrew Needham looks at circumstances in which input tax can be reclaimed without a VAT invoice.
The normal VAT recovery rules are that HMRC expects a business to obtain a purchase invoice from a supplier in order to recover the input tax it is charged. If the purchase is for over £250 excluding VAT you will need a full tax invoice, but for purchases under £250 a less detailed invoice only is required – till receipts for fuel purchases, for example.
However, the legislation allows HMRC to use their discretion to allow deduction of input tax based on alternative evidence. The important word here is ‘discretion’. If a case is appealed, the tribunal’s powers are only supervisory, so HMRC would have had to be unreasonable in not accepting alternative evidence for the taxpayer to win.
What is alternative evidence?
However, HMRC is given the power (under SI 1995/2518, reg 29(2)) to require a VAT registered business to hold evidence to support a claim for input tax. HMRC issued a statement of practice (SP 7/2003) effective from 16 April 2003, regarding the circumstances in which input tax recovery is allowed in the absence of a valid VAT invoice.
Alternative evidence could comprise any of the following documents (although anything that can support the claim can also be included):
- purchase order;
- delivery notes;
- records of payment;
- records of the onward sales of the purchased items;
- transport invoices/insurance;
- supplier’s VAT number.
In addition to alternative evidence, HMRC will ask a taxpayer to satisfactorily answer most of the following questions:
- Is there alternative documentary evidence other than an invoice (e.g. supplier statement)?
- Is there evidence of receipt of a taxable supply on which VAT has been charged?
- Is there evidence of payment?
- Is there evidence of how the goods/services have been consumed within the claimant’s business or their onward supply?
- How did the claimant know that the supplier existed?
- How was the claimant’s relationship with the supplier established?
HMRC’s approach
The key approach that HMRC should adopt on a VAT inspection is as follows:
- the officer should be satisfied that a genuine supply has taken place;
- the input tax on the supply is being claimed by the business to whom the supply is made;
- the VAT on the supply must be charged at the correct rate;
the business making the claim must hold satisfactory evidence of its entitlement to input tax as above.
In a First-tier Tribunal case (London Wiper Company Ltd v Revenue and Customs [2011] UKFTT 445 (TC)), HMRC disallowed an input tax claim because they concluded that the invoices were invalid, and that the appellant did not hold sufficient alternative evidence for them to satisfy HMRC that the supplies actually took place. The appellant said that the supplies did exist and that HMRC had acted unreasonably in not accepting alternative evidence.
The tribunal was satisfied that all the invoices, when combined with weighbridge certificates, provided all the necessary information to validate the invoices and that HMRC had acted unreasonably in refusing to accept that there was sufficient alternative evidence.
If you can’t get a valid VAT invoice or have lost the original and cannot get a copy from the original supplier, make sure you have enough alternative evidence to satisfy HMRC.
Practical tip
If you don’t have a purchase invoice, you may still be able to recover the VAT provided you have sufficient alternative evidence and satisfy HMRC that the supply took place.
