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It Pays to Get the VAT Basics Right 2 - Recovering VAT on purchase invoices


The VAT People - Expert Author

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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 they are charged VAT by a supplier, they can claim it from HMRC without taking into 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 service sector this can be a real problem. It is surprisingly common for suppliers to invoice building services that are either VAT free (zero rate) or reduced rate 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 reduced rate for VAT is treated as standard rate for VAT HMRC do not view the amount charged as input VAT. Instead it is an error on the part of the supplier and cannot be claimed as input VAT by the recipient. This also applies to VAT claims made 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 doing 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 to 100% 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 the self biller over claiming input VAT. In this case given that the supplier has generated their own over claim of VAT HMRC are more likely to apply a higher 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 Builders 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 rate of VAT. It is also worth ensuring that invoices issued do not misstate the VAT due as this can result in a loss of VAT recovery to clients and a breakdown in the business relationship.

About the Author

The 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.

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Article Published/Sorted/Amended on Scopulus 2014-01-03 10:05:17 in Tax Articles

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