VQOTW: Input VAT - Too Late to Claim?

My client has been approached by a builder, who carried out repair work to the client’s factory some years ago. The builder was late registering for VAT and is now looking to issue VAT only invoices to my client for the supplies in question. I have several concerns: is the supplier liable to account for the VAT if the supplies were made more than 4 years ago? Is my client obliged to pay and if so can he now recover the VAT given that the original invoices were dated more than 4 years ago?

The supplier will be liable to account for VAT on supplies made since the effective date of registration. HMRC will treat the income as VAT inclusive, but the supplier has the option of issuing VAT only invoices if the customers agree to pay the extra, usually on the basis they can recover it.

Whether your client has to pay is really a legal or contractual issue. If there is no legal obligation then it is a matter of goodwill and arguably if the VAT can be recovered it would seem churlish not to pay. As not everyone would agree, it is recommended that suppliers always check that customers are happy to pay before issuing VAT only invoices.

With regard to the 4 year cap on recovery of input tax; Regulations 29 (1) and 29 1(A) of the VAT General Regulations 1995 (SI 1995/2518) stipulate that input tax should be claimed in the first prescribed accounting period in which the VAT became chargeable and the correct documentation is held to support the claim. The regulations further state that the Commissioners shall not allow a person to make any claim for deduction of input tax, such that the deduction would fall to be claimed more than 4 years after the due date of the return for the period in which the entitlement arose.

However in your client’s case, as they will have only just received the evidence in the form of the VAT only invoices, the 4 year time limit will run from that date and it will not be capped as a late claim.

This is confirmed in the VAT Assessment & Error Correction Manual VAEC8120:

“A late claim to input tax is one that is made in any accounting period after that in which the entitlement to make a claim to deduct it first arose. The entitlement to make a claim to deduct input tax first arises when the taxable person has both incurred the input tax and received the VAT invoice (or other alternative evidence acceptable to HMRC) to support its deduction”.

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If you have a VAT query why not contact the VAT Advice Line on 0844 892 2470 to discuss the implications. Our team of experts have a wealth of experience and can also provide a written consultancy service at £180 per hour plus VAT.

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VAT Advice Consultant
0844 892 2470

Sally is the Team Leader of the VAT Advice and Consultancy team at Croner Taxwise. She has worked in VAT since 1990, including eight years spent with HMRC, both as an Assurance and Enquiries Officer involved in presenting seminars and business education. Since joining private practice in 1999, Sally has specialised in providing VAT technical advice to a variety of clients, ranging from small one-man bands to large multi-national corporations, on the full range of VAT technical matters.

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