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Imput Tax Explained

That was easy

This week, in the first of three articles, I will explain how a business can still claim input tax even if it can’t produce a tax invoice to HMRC.

The evidence needed to claim input tax

The main document needed to claim input tax is a tax invoice, which should include all of the following information (VAT guide, Notice 700, para 16 refers):

  • Name, address and VAT registration number of the supplier
  • The name and address of the customer, together with a description of the goods or services being supplied
  • A unique identifying number (it should be sequential)
  • A time of supply (tax point) – this will be the date when the customer can claim input tax and is usually the date on the invoice; unless you use the cash accounting scheme, in which case the payment date becomes relevant
  • The total amount chargeable excluding VAT and a separate amount for the VAT. If the total value of the supply is less than £250, then a less detailed tax invoice can be issued

Is alternative evidence acceptableto claim input tax?

I am often asked by clients, ‘can I claim input tax without a tax invoice?’ The answer is yes, as long as emails and or other documents are held that enables the following questions to be answered:

  • Has VAT been paid to a ‘taxable person’?
  • Is there some evidence of the supplier’s VAT number?
  • Does the expense in question relate to your business?

In fact HMRC’s own guidance manual states:

“Where claims to deduct VAT are not supported by a valid VAT invoice HMRC 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. Nevertheless this obligation must be balanced against a duty to protect the public revenue”

Tax Invoice Examples

In reality, most supplies of goods or services will probably involve correspondence with the supplier; there may be a contract document, order form (often by email), delivery note and supplier statement.

However, a key question that a HMRC officer would ask is: “Why couldn’t the customer ask the supplier for a copy tax invoice?” That copy invoice would of course solve all the VAT record issues.

There are a number of reasons why you may have difficulties in obtaining a copy invoice, the main two being, where the supplier has ceased to trade or when either because of poor admin or sheer bloody mindedness, the supplier can’t or won’t.

Self-billing invoices

Many businesses who buy in small amounts of work from numerous suppliers claim input tax on self-billed invoices they issue to those suppliers or subcontractors. This is a common procedure in the construction industry, but also in media and publishing where variable amounts of royalties are paid to artists and authors.

It is vital that you regularly check that the suppliers/subcontractors are still VAT registered and accounting for output tax on these documents (See: www.gov.uk/guidance/self-billing-notice-70062) or else your claim will be disallowed.

Image of David Jones Shrewsbury Accountant and Founder of Morgan Jones

If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.