It Pays to Get the VAT Basics Right 2 - Recovering VAT on purchase invoices
Submit Articles Back to Articles
12th December 2013
In order to be certain it can claim VAT on costs a
business needs to consider a number of points such as;
1. Has it got
a VAT invoice from the supplier, and
2. Has it used
the cost to make VATable supplies, and
3. Was it
charged the correct amount of VAT by the supplier?
Whilst most businesses will be aware of point 1 and most
will understand point 2 it is common for businesses to assume that if
charged VAT by a supplier, they can claim it from HMRC without taking
account if the rate applied by the supplier is correct.
For most businesses this will not be an issue, however
for those in the building and construction industry and financial
sector this can be a real problem. It is surprisingly common for
invoice building services that are either VAT free (zero rate) or
for VAT as plus standard rate VAT.
The problem is that where the wrong amount of VAT is
charged in error as a supply that either doesn’t attract VAT or is
for VAT is treated as standard rate for VAT HMRC do not view the amount
as input VAT. Instead it is an error on the part of the supplier and
claimed as input VAT by the recipient. This also applies to VAT claims
under the DIY house builders scheme.
This means that HMRC can and will block input VAT claimed
in these circumstances and case law supports their being successful in
so. HMRC can keep the over declared VAT as a crown debt due to HMRC,
but at the
same time assess for over claimed input VAT and apply penalties of up
of the VAT.
Where the supplier has been self billed with the wrong
rate of VAT applied, it can lead to the supplier over declaring VAT and
self biller over claiming input VAT. In this case given that the
generated their own over claim of VAT HMRC are more likely to apply a
level of penalties if the issue is noted during a VAT visit.
If you or your clients are involved in the building
sector, self billing or making a claim for VAT under the DIY House
scheme it would be worth checking that VAT is not being over charged on
purchases that may qualify to be supplied at either the zero or reduced
VAT. It is also worth ensuring that invoices issued do not misstate the
as this can result in a loss of VAT recovery to clients and a breakdown
About the Author
VAT People are leading VAT and Customs Duty
consultants based in the
North West of England. We work with a wide range of businesses
throughout the UK as well as assisting our accountancy colleagues to
unravel the thorny VAT issues for their clients. We are one of the UK's
largest and most comprehensive sources of VAT and Customs advice, our
consultancy team having over 140
years of experience in VAT and Customs
gained in either HMRC or a Big 4 accountancy practice environment.
Call us on our VAT helpline 0800 077 4604 to discuss. All initial discussions are free with no-obligation.
Follow us @Scopulus_News
Article Published/Sorted/Amended on Scopulus 2014-01-03 10:05:17 in Tax Articles