Andrew Needham looks at what evidence a business needs to reclaim input tax.
A tax invoice is supposed to show the person to whom the goods or services are supplied. So, if an invoice is not in the name of the business, it usually means that the supply was not made to it. In principle, therefore, it should not recover VAT on invoices in the name of third parties.
HMRC say that a claim to deduct input tax must be supported by appropriate documentary evidence, which includes:
- a full tax invoice that meets the legal criteria;
- a self-billed invoice from someone who has been approved by HMRC to issue one;
- a ‘less detailed’ tax invoice where the tax inclusive value of the supply is £250 or less; and
- an authenticated receipt for stage payments in the construction industry.
Less detailed tax invoices do not require a customer address, so the VAT on any invoice for less than £250 can be reclaimed even though they are not addressed to the business.
Invoices not in the name of the business
HMRC will sometimes allow input tax recovery in circumstances where they are sure that there was a supply made to the person claiming the input VAT, and that the same input VAT has not already been claimed by the party to which the invoice was addressed. This situation normally arises when there are a ‘group’ of companies with similar names and suppliers address their invoice to the wrong legal entity by mistake. However, it is far better to obtain an invoice in the right name in the first place, and if this happens it is better to ask the supplier to re-invoice in the correct name.
The one common exception to that requirement is expenses incurred by employees. Whilst it is always a good idea to obtain an invoice addressed to the employer if possible for, say, hotel accommodation, HMRC do not insist on this. Naturally, the travel must be on business.
When part of an expense, such as business calls on a private telephone bill, is paid by an employer, HMRC will allow recovery of the appropriate proportion of VAT, provided, of course, that it obtains a copy of the bill in question.
These costs are normally paid to the employee through an expenses claim, and HMRC accept that if the business is prepared to authorise payment of these costs they are legitimate business expenses and allow input tax deduction, even though the invoice is addressed to an employee rather than the business.
Alternative evidence
In principle, a business must hold the correct evidence before being able to exercise the right to deduct, but there may be times when the correct evidence is not held. However, there may be alternative evidence to support a claim to input tax, and HMRC can accept this at their discretion.
HMRC say that where claims to deduct VAT are not supported by a valid VAT invoice, their 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.
Practical Tip:
If you have an invoice wrongly addressed to your business, try and obtain a correctly addressed invoice, although HMRC may accept alternative evidence. HMRC will normally accept invoices addressed to employees and claimed as expences.
