Being VAT registered is just the first step that you have to take when you seek to recover VAT incurred on the costs your business activities have incurred. Key in the recovery process is both the point of demonstrating that the VAT you have paid out relates to your taxable business activities but also that the evidence you hold to support that recovery meets the requirements to be accepted as proper VAT evidence. There have been a few VAT cases in the First Tier Tribunals recently that speak to the issues of correct VAT invoices which demonstrate the importance of these documents. One argument that HMRC didn’t win in this regard was in the case of Fount Construction Limited. The case report illustrates that whilst the VAT amount being contested was not huge – £15,218.59 to be precise it was the principle of what constitutes a proper VAT invoice that took priority. The General VAT regulations 1994 at reg 14 (1) stand that: “14(1) … a registered person providing a VAT invoice in accordance with regulation 13 shall state thereon the following particulars— … (g) a description sufficient to identify the goods or services supplied, (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,” In this instance the taxpayer had invoices for construction services it had bought but HMRC was not content with the description provided on those invoices that were sufficient to be used as VAT evidence as they only stated – “Building works” although they did also include the address of the site in question. HMRC felt that the description needed should allow them to draw a definitive view of what was being done and therefore the VAT liability of that supply – these did not so they raised their assessment. The Tribunal disagreed with HMRC in this instance accepting that the inclusion of the site address helped support the requirement set in reg 14(1). In the case of 9 UP Consultant Ltd the ruling on input tax evidence fell the other way – again all matters need to consider the facts of each case. Here the VAT at stake was even smaller at £1,754.75 and related to VAT recovery from the 1st VAT return of the business. Again the point at issue was the nature of the VAT evidence held by the taxpayer and there is a reference to Gen Reg 14 (1) as above. In addition, the VAT Act 1994 is cited particularly, in sections 24 and 26 which look at the definition of input tax: Section 24(1) of VATA94 states: “Subject to the following provisions of this section, “input tax”, in relation to a taxable person, means the following tax, that is to say – (a) VAT on the supply to him of any goods or services; (b) …; and (c) VAT paid or payable by him on the importation of any goods…, being (in each case) goods or services used or to be used for the purpose of any business carried on or to be carried on by him. Section 24(6)(a) VATA94 states: “for VAT on the supply of goods or services to a taxable person … and VAT paid or payable by a taxable person on the importation of goods … to be treated as his input tax only if and to the extent that the charge to VAT is evidenced and quantified by reference to such documents or other information as may be specified in the regulations or the Commissioners may direct either generally or in particular cases or classes of cases;…”. The items on which VAT recovery was being sought were luxury goods and had been purchased from retailers in London where invoices provided would have been more of a “receipt” than an invoice and lacked the name of the customer and in another instance had the name of the wife of the taxpayer as opposed to the business itself. The Tribunal were not prepared to accept the evidence offered met the requirements to be regarded as valid VAT invoices and therefore the appeal against HMRC’s assessment was dismissed. Being aware of these basic VAT requirements for tax invoices is so important, therefore – from the perspective of the supplier and the customer. For a supplier it illustrates that the VAT treatment they have applied can be supported – the description of the supply will influence the VAT treatment as can the nature of the customer and where they are based. All of these aspects can be addressed with a correctly formatted VAT invoice. As for the purchaser – the VAT invoice is there to evidence that the VAT was correctly incurred and incurred by them. VAT can only be recovered by the person to whom the supply was made after all. Therefore whilst the VAT values at stake may appear small – the principle at stake is what drives these cases. Correct VAT invoices as VAT recovery evidence is key. There is scope for interpretation as the Fount case shows but it’s so important to understand what governs the right to VAT recovery.
Xeinadin runs online VAT training sessions covering the Basic rules for Accounts Payable staff to ensure that anyone processing VAT invoices is aware of the rules for recovery that apply. If you’d like details of the next VAT training event then get in touch using the contact form below.
