I am just starting to do quarterly VAT returns (cash based rather than accrauls) for a small limited company. Unfortunately, they don't always have VAT invoices for all the purchases from suppliers. I know that you can not reclaim input VAT without a valid VAT invoice; also that you can reclaim on later return, if the VAT invoice is found later.
How do I treat purchases without a VAT invoice, with regard to the VAT return? If the VAT invoice is found later, what adjustments do I make [totals in Box 4 and Box 7] in a subsequent VAT return?
I guess this is a fairly common situation for small businesses!
Yes, you are right, this is a very common situation for small businesses, even some larger ones!
Are you employed by this business, or is it a client?
If you are preparing the VAT return on a cash basis, then obviously you will only be entering the VAT from payments against invoices that have been paid. Are you able to deduce from the bank statement which suppliers invoices have been paid? If so, you could possibly contact them and ask for duplicates? If there are no invoices and you have to enter payments on account, then you will have to enter them with a non-vatable tax code. Then when/if the invoice comes to light later you can make an adjustment for the VAT.
With regard to the adjustments you would add the VAT amount on the payment to Box 4 and the net total of the invoice to Box 7. Are you using accounting software? In Sage there are separate boxes for manual adjustments.
Thanks very much, Pauline, for getting back with your advice. It makes good sense, and is very encouraging.
The business in question is a client. I've actually been looking after their accounting for a while now, but they've just come off the flat rate scheme for VAT - so it's 'grown up' VAT from now on.
Being on the cash based scheme, it's not so difficult to spot most of the payments from the company bank a/c.
As you say, if a supplier invoice is missed entirely in one quarter, you just have to add the VAT amount to Box 4 and the net amount to Box 7 in the subsequent VAT return. However, if you knew a payment had been made, but not that there was recoverable VAT, the adjustment to make in the subsequent return would be to add the VAT to Box 4 but to subtract it from Box 7. This is because, in the previous return, the gross amount would have been added to Box 7, rather than the net amount. Does that make sense?
Actually, being a small company with relatively straight forward affairs, I do pretty much the whole thing using Excel. The BKN cash book that I have downloaded is proving very helpful in drawing up the first VAT return.
............... I know that you can not reclaim input VAT without a valid VAT invoice;
Hi Mark,
Re. the above, could I challenge that statement a little and ask where you found that guidance ?
No matter what the VAT Office might say, an invoice is not the only form of evidence of VAT having been incurred. If you have a supplier who is known to be VAT registered, then I would make a note of their number in your Excel entry and claim it as usual. Very good practice to seek to obtain the invoice but I wouldn't create work for yourself if you are certain you have paid VAT.
Look forward to your posts and welcome to the forum.
Even a pro forma invoice is not enough evidence, which is the one I have most problems with, as there is usually no "real" invoice supplied afterwards.
I will enter a transaction, if I know for certain an invoice is on it's way, or has been requested, and is on it's way but I will zero rate any others that don't fall in to HMRC requirments.
I was always taught that you couldn't claim vat unless you had a proper vat invoice either full or simplified (for less than £250). I can however see the logic in what Tim is saying, however it then lacks a paper trail which is something HMRC seem to love.
Thanks peeps. I will amend my view if I can on this so appreaciate the discussion and hopefully it is of use to Mark and others.
I don't doubt for a second the VAT office can assess for missing invoices. Just obviously that delaying claims harms clients cash-flow and muddy's the trail on subsequent returns whenever an invoice is mislaid. I'd be on the side of the people who pay me and are all day frantically trying to pay rates, tax, NI, council tax etc etc. I'd like to hear any recent experiences of appealing against such an assessment. If one is threatened during a Visit make it clear a formal appeal will follow along the lines of "here's proof of purchase; please suspend collection until this appeal listed etc" thus highlighting the futility of unreasonable threats where VAT is known to have been incurred.
Re. pro-formers, on the face of it is obviously more dangerous than holding no invoice as the transaction didn't necessarily take place. It is better to rely a delivery note or bank statement as long as one is sure the transaction took place.
The opening sentence of 19.7 sets the tone of HMRC guidance. "You must keep all invoices.......that you receive." Well, err yes. We're not talking about deliberately throwing them away.
"In your own interest, you should obtain and retain VAT invoices. Without them, you may not be able to reclaim VAT you have been charged."
They seem at pains not to baldly state 'you can't claim without an invoice'. Only with Cash and Carry supplies, does it come close and even in that paragraph the more categorical statement is that you obtain a product code list!
"You will need invoices to support your claim." What!? Why only on cash and carry invoices? What if your claim doesn't need invoice support as you already have proof of purchase? It doesn't say.
Even Customs concede that you don't always need an invoice for some supplies under £25.
Am I missing something? Is it just that the section is due a re-write because as things stand, IMHO having an invoice isn't set in stone. Is anyone getting this sort of instruction from professional bodies because if so, they might be going further than VAT 700 guidance.
Another document source, you might find interesting (?) from HMRC that goes into more detail on the records a trader should use and keep for VAT purposes.
Just my take on it. If a taxable person is making a taxable supply then he is legally obliged under the VAT Regs 1995 to supply a VAT invoice (with some specific exceptions). So in theory there should be no excuse for not having an acceptable receipt/ invoice
One thing that did cross my mind about using say a bank statement entry or delivery note as proof of VATable supply, what you don't get is time of supply, or date of issue.
Thanks for that, Bill and the previous link. I can see I'll be dreaming VAT Regs tonight. This is a bit of a hobby horse so I'm finally thrashing it out; having had an ingrained position since I was most involved with VAT, predating even these Regulations, although I doubt much has changed.
2.2 is quoting from the 1995 Regulations so we're close enough to source law. The origin of the 700/19.7 guidance I criticised must be 2.2(1)(d) and (i) both of which use the word 'received'. (d) all invoices received by him and (i) that are received.
Quite right. They're not expecting you to keep a supplier's records but to safely keep the ones you get.
Contrast this with 2.2 (1) "Every taxable person shall...... keep the following records.........(c) Copies of all VAT Invoices issued....". There's no doubting that as regards sales you must keep all your invoices.
And yes, it does follow that you should be able to obtain an invoice. But it doesn't plainly say you must have an invoice to claim VAT. I'm sure a VAT officer would understand no invoice was available if a supplier had fled the country/sent to prison/deceased etc. but I'm not asking for their understanding; the legislation does that.
I've not read these for years so its become clear to me that the Regulations are intentionally giving scope for discretion where an invoice is not in the records. That would explain why the 700 guidance doesn't go as far as one might think and tells me that this has all been well drafted with imperfect human beings in mind. Unfortunately, in this case, popular interpretation seems more draconian than the regulations.
Referring to Steve's point, I wonder if a merging of instructions has evolved to encompass full audit jobs as well.
Good point about time of supply. I hadn't really considered it as I was nearly always dealing with Cash Accounting. A lot of the clients were either retail, got paid at the time of supply or there was little distinguishing between Sales and Paid dates. (VAT was slightly newer and records were generally poorer than today. The registration threshold was low enough that more one-man-bands were required to be registered). Good stuff.
lol dangerously, I've been waffling on and on with myself and there it is in the Regs.
I'd remark that the Commissioners seem to have the final say in 13(1) and save as the Commissioners may otherwise allow or direct either generally or specially...... Beyond them, I think you'd need to go to Court on a point of law; um i dunno, say the human rights act.
I presume, then, that the Commissioners know that the regulations are unenforceable to the letter in every case. If they tried, VAT as a tax might fail like the Community Charge, for instance. This may explain the pussy-footing about in the Vat Guide.
Cheers Bill and everyone. Sorry for high-jacking your thread, Mark. Please post again if you need to.
Regards,
Tim
Edit: removed excess word.
-- Edited by Don Tax on Monday 16th of July 2012 03:41:41 PM
Soemthing that says you can (usually) only claim VAT back if you have a VAT invoice.
Extract from HMRC:
You need a valid VAT invoice to reclaim VAT
Even if you are registered for VAT, you can normally only reclaim VAT on your purchases if:
you buy an item and use it for business purposes
you have a valid VAT invoice for the purchase
Only VAT-registered businesses can issue valid VAT invoices. You cannot reclaim VAT on any goods or services that you buy from a business that is not VAT registered.
This is from the last section of the following HMRC "Managing VAT". It also says something similar, in the third opening paragraph.
While I'm not directly entering this debate I do find it interesting that Tims view is based on the act of parliament, while others seem to be basing theirs on HMRC guidance, which is after all, only their interpretation of the legislation. This interpretation is only right until it's wrong, it wont be the first time someone has challenged HMRC's interpretation of legislation and won.
While I'm not directly entering this debate I do find it interesting that Tims view is based on the act of parliament, while others seem to be basing theirs on HMRC guidance, which is after all, only their interpretation of the legislation. This interpretation is only right until it's wrong, it wont be the first time someone has challenged HMRC's interpretation of legislation and won.
Its because HMRC is the mouthpiece of the Government that people assume that what they say is a statement of fact.
However, as rightly identified in this thread HMRC guidance is based on the laws as HMRC would like them to have been rather than as they are and most people never go beyond the HMRC site.
I know on many / most occassions I'm as guilty of that as anyone and sure that other bookkeepers and accountants do exactly the same.
Thanks for pointing this one out Tim.
Seems as though the HMRC website is becoming the Wikipedia of tax legislation. (did I tell you the one where my boy was being taught that the black death was spread by Beavers!!! lol. Seems that some miscreant had slipped that into wikipedia and the teacher was getting their material from there!).
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Well spotted Bill. That's the baldest phrase yet and as you can imagine, I have a couple of comments :) It is a heading and meant to be read in conjunction with the the word you've noticed crucially undermines the heading itself (normally). Perhaps that phrase is used now on printed HMRC matter. If it's only on electronic media, the offending word could be shifted to within the title and it goes beyond the regulations. You can imagine traders laughing if they'd tried to introduce VAT with that on a leaflet.
You've found the origin of the assumption which I'm still miles away from and am prompted in all this partly to save needless work. A simple example would be if a client regularly lost one in five BP fuel invoices but always paid through the bank. I doubt a Vat officer would disallow the claim unless there was a mass of other missing sales, purchase, cash and bank records.
(back from actual work)
If, subsequent to a VAT Visit, all the records except the BP fuel bills were supplied to the Vat officer, then HMRC would have a poor case to resist an appeal. I'd only made claims that I was sure happened and wasn't claiming to be auditing whilst doing so.
Regulation 13, refered to in (2) (a) is a VAT invoice.
Dangerously, I make the assumption that they insert the word "normally" to cover such events when one is not required, for example an off road parking ticket, or when the evidence is some other document such as a C79 certificate etc.
