VAT Input Tax

The input tax VAT that a business has been charged is referred to as VAT Input Tax. The VAT Act 1994 allows a business that is registered for VAT to reduce the amount of Output Tax it is required to pay to HMRC by the amount of VAT they have been charged by their suppliers in making their taxable supplies.

Criteria

Any claim for VAT input tax must meet all the following criteria:

the amount claimed must be VAT properly charged by another taxable person or relate to a taxable importation or acquisition;
the supplies on which the VAT was charged must be made to the person who is claiming the input tax;
the supplies of goods and services must have been received for the purpose of the business;
the supplies must normally be received in the accounting period in which the claim is to be made; see VIT30500
the person claiming VAT input tax must hold good documentary evidence of the supplies in support of the claim; and
the supplies received must not be subject to input tax restriction in a Treasury blocking order.

Documentary evidence

To be able to recover VAT Input Tax it is essential for a business to have the correct documentary evidence. The following documents are evidence to support a claim for VAT Input Tax:

a tax invoice that meets the criteria set out in Regulation 14 of the Value Added Tax (General) Regulations 1995;
a self-billed invoice from someone who has been approved by HMRC to issue one;
a “less detailed” tax invoice where the tax inclusive value of the supply is £250 or less;
an authenticated receipt for stage payments in the construction industry.

In Tower Bridge GP Ltd v The Commissioners for HM Revenue and Customs [2022] EWCA Civ 998, the Court of Appeal has ruled that absent a valid VAT invoice showing the supplier’s VAT number and the customer’s name, the right to deduct the input VAT on that invoice could not be exercised.

VAT invoice requirements

We have outlined the VAT invoice requirements to enable the recovery of VAT input tax.

Imported goods – VAT input tax

A VAT registered businesses can account for import VAT on their VAT Return by using postponed VAT accounting. Accounting for VAT input tax on a businesses VAT Return in this way allows it to declare import VAT and reclaim it as VAT input tax on the same VAT Return. A business can reclaim the VAT incurred on the imported goods it owns as input tax subject to the normal rules.

Alternatively a business can choose to pay import VAT at the time of importation. If a business choose to do this, it can reclaim the VAT incurred on the imported goods it owns as input tax subject to the normal rules.

To claim VAT input tax on imported goods a business will need the import VAT statement as evidence. A shipping or forwarding agent cannot usually reclaim this input tax because the goods were not imported to be used in part of their business.

Potential issues

When considering reclaiming VAT Inut Tax you need to consider:

the purpose of the business requirement is not obviously met or
the supplies are not solely used for a business purpose
you will have to think about whether input tax can be claimed. There is a degree of subjectivity in deciding whether a claim can be made.

VAT Input tax can only be claimed after it has been established that VAT was incurred for a business purpose.

Contact

To speak to one of out VAT experts call Solve VAT on 0161 883 2120.

VAT Input Tax – VAT recovery