What proof do you really need to reclaim VAT?

In December 2016 the Court of Appeal criticised HMRC for not allowing a claim for VAT because the business didn’t have the normal documents required. What precisely is needed if you want to successfully reclaim VAT on purchases?

The right paperwork

When it comes to reclaiming VAT on purchases HMRC’s guidance says you must have the appropriate documentary evidence. It lists the following as examples:

  • VAT invoices which show all the information required by law
  • self-billed invoices, with all the required details, and only if HMRC has agreed you can use them
  • less detailed invoices where the tax-inclusive value of the supply is £250 or less
  • construction industry authenticated receipts for stage payments

Tip 1. Less detailed tax invoices include retail receipts such as those from petrol stations, high street stores, etc.

Tip 2. You can reclaim VAT on purchases of up to £25 without a receipt. For example, when made using coin-operated machines, but of course only if you can show that the supplier is VAT registered.

Whose name is on the paper?

It’s still a commonly accepted myth that an invoice or receipt must be in the name of the business which reclaims the VAT. Actually, the law says that only the person (business) who receives the supply can reclaim the VAT. So you can’t reclaim VAT for a purchase of goods or services supplied to you personally just by “putting it through the business”. On the other hand, if an invoice shows someone else’s details, say an employee’s, but the purchase was for your business, you are entitled to reclaim the VAT.

Tip. It’s always better to get the invoice etc. addressed to your business whenever possible to avoid questions from HMRC inspectors when checking your records.

No invoice?

As we mentioned earlier, you must have appropriate documentary evidence to back up your VAT claims, but this doesn’t mean that paperwork other than invoices and receipts aren’t sufficient. There might be a reason that you can’t obtain one from the supplier. In this situation HMRC will accept a claim for VAT where you can show to its satisfaction that:

  • the purchase actually took place, this might include alternative documentary evidence
  • it was a purchase for your business
  • you made reasonable checks about the supplier
  • there was a commercial arrangement between you and the supplier.

Proof that VAT was paid

The alternative documentary evidence must show that VAT has been charged on the supply and that you have paid it - a corresponding entry on a bank statement which can be linked to the supplier will do. You’ll also need evidence that the goods or services were actually used by your business.

Tip. The level of evidence and amount of persuading needed to satisfy an HMRC inspector will depend to a large degree on the amount you’re claiming. For the odd £20 or £30 of VAT don’t worry too much. But where large sums are involved make sure you meet HMRC’s criteria.

Obtain a full VAT invoice whenever possible as this will make life with HMRC easier. However, the invoice can be in someone else’s name, e.g. an employee’s, as long as you can show that the purchase was for you. If you can’t get an invoice HMRC must properly consider other evidence such as supplier statements.