Introduction
Businesses often ask if they can claim input VAT without a VAT invoice. The common misconception is that VAT cannot be recovered without an original paper receipt. The easiest way to demonstrate input VAT recovery is by holding a valid VAT invoice.
Sometimes all you have is an item on a bank or credit card statement. This is when the alternative evidence we are forced to rely on can get stretched to breaking point.
This often happens with online orders, where the business fails to print or save the receipt, or when they buy goods on a card in-store rather than using their account and then lose the receipt.
If it's a regular supplier with a known VAT number and the goods purchased couldn't have been for anything other than the business, then often businesses would claim the input VAT, although HMRC may argue the evidence is insufficient if they ever found out.
Basic evidence to claim input tax
You must have evidence of VAT paid on purchases. Usually this will be the original invoice or VAT receipt from the employee or contractor.
The main document needed to claim input tax is a VAT invoice that complies with the legislation concerning the contents of a VAT invoice (VAT Regulations: SI 1995/2518, Reg 14).
A valid invoice should include all of the following information:
Name, address and VAT registration number of the supplier,
The name and address of the customer, along with a description of the goods or services being supplied,
A unique sequential identifying number,
A date of supply (the tax point date). This will be the date when the customer can claim input tax unless they use the cash accounting scheme, in which case the payment date becomes relevant.
The amount chargeable before VAT together with a separate amount for the VAT. If the total value is less than £250, then a less detailed tax invoice can be issued (VAT Notice 700, para 16.6).
When input VAT is reclaimed, businesses must have evidence to show the supply was made for its business and in connection with the VATable supplies it makes.
It doesn’t usually matter who originally paid for the supplies, or whose name is on the invoice or receipt, as long as the supply was for the business’s trade and the business ultimately bears the full cost of the expense e.g. by reimbursing the employee or contractor. (#) For this purpose, contractors working for the business count as employees.
Businesses do not have to have an invoice to claim VAT on an expense. So long as you can prove to the tax man, if required, you simply have to demonstrate that you incurred the cost. So if you pay for a business trip and loose the receipt, so long as you can show that your employee attended the event then you can prove that a cost was incurred. You then have to demonstrate that the cost incurred for the event is fair.....unless you have a receipt to prove the actual cost.
Will HMRC accept alternative evidence?
Yes they will, but only as long as a number of other documents are held that allows the following questions to be answered:
Has VAT been paid to a taxable person?
Is there evidence of a supplier VAT number?
Does the expense in question relate to the business that is seeking to claim input tax?
The requirement for HMRC to consider alternative evidence has legislative force: VAT Regulations, SI 1995/2518, Reg. 29(2).
HMRC’s internal guide states its own position to its VAT officers:
“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.”
Most purchases of goods or services will probably involve correspondence with the supplier e.g. with a contract, order, delivery note or supplier statement. Nowadays they are often emailed.
An HMRC officer may ask why a business cannot obtain a copy invoice from the supplier.
It could be that the supplier has ceased to trade or cannot be contacted. Quite often with online purchases no formal invoice is ever received or at least downloaded as part of the transaction. If a business was to buy something over the telephone of or the Internet of and provide credit card details is automatically reduced by the supplier.
In 2007, HMRC issued a Statement of Practice titled ‘VAT Strategy: Input Tax deduction without a valid VAT invoice’. This Statement of Practice it is still quoted in HMRC’s internal manuals so has stood the test of time.
Under the Statement of Practice HMRC must use their discretion and be satisfied that:
The supply as stated on the invoice did take place
There is other evidence to show that the supply/transaction occurred
The supply made is in furtherance of the trader’s business
The trader has undertaken normal commercial checks to establish the bona fide of the supply and supplier
Normal commercial arrangements are in place.
Appendix 2 to the Statement of Practice asks the following questions to determine whether there is a right to claim input VAT in the absence of a valid VAT invoice
Do you have alternative documentary evidence other than an invoice (e.g. supplier statement)?
Do you have evidence of receipt of a taxable supply on which VAT has been charged?
Do you have evidence of payment?
Do you have evidence of how the goods/services have been consumed within your business or their onward supply?
How did you know that the supplier existed?
How was your relationship with the supplier established?
This list is not exhaustive and additional questions may be asked in individual circumstances.
Small purchases
There is no requirement to hold a VAT invoice for some supplies up to a value of £25 (including VAT). e.g. calls from public or private telephones, supplies from coin-operated machines, toll charges and car parking charges. N.B there is never VAT charges from on -street meters, operated by the local council. There may be VAT charged on privately operated off-street parking.
Digital copies
Businesses do not have to retain hard-copy paper invoices for all their purchases and expenses. They can reclaim VAT back using digital copies e.g. through either scanned paper copies or original emailed or downloaded PDF invoices.
Businesses can therefore collect invoices digitally and retain these electronically rather than hold paper originals. However, they must be are clearly legible, easily accessible, printable and not manipulated or editable.