One of the fundamental requirements for re-claiming input tax on a VAT return is the need to have a valid VAT invoice. A valid invoice must include certain requisite information, such as details of the goods or services purchased, the VAT registration number of the supplier, their address, and show the amount of VAT on a separate line to the cost of the expense.
HMRC routinely carry out VAT inspections for compliance purposes. If they find invoices that don’t meet these requirements they will be classed as invalid VAT invoices. If this happens there are a number of ways things can go. The worst-case scenario is the denial of the input tax claim, which could also lead to further problems if HMRC feel it’s likely that invalid invoices have been issued previously. However, there are strategies that can prevent things getting that far.
Firstly, the supplier should be contacted immediately. If they are a legitimate VAT-registered business, they should have no problem replacing the invoices with versions that meet the requirements. However, with many businesses closing due to COVID-19 over the last 18 months, it’s possible that there is no supplier available to contact.
If this is the case, it may still be possible to claim the input tax if alternative evidence can be provided. The claimant will also need to demonstrate to HMRC that they attempted to contact the supplier to obtain valid invoices in the first instance. It’s worth obtaining evidence of the business’ closure, for example, a screen-print of the website stating that it is no longer trading or similar.
Essentially, HMRC will want evidence that shows that supply has actually been made to the person making the claim, and that this was subject to VAT at the appropriate rate. They will also want the claimant to show that payment was made, which could be done by matching bank statements to purchase orders etc.
HMRC’s guidance at VIT31200 details the questions the compliance officer will be asking themselves when checking alternative evidence. It’s another reminder that sound internal business records are a vital part of securing the correct tax deductions, including those for VAT input tax.