How to get the evidence right
To successfully claim input tax, businesses must ensure they hold appropriate evidence to support their claim. A failure to do so can result in HMRC disputing the claim – even where the underlying transaction is genuine.
In most cases, the core piece of evidence is a VAT invoice issued by the supplier. However, other forms of documentation may also be acceptable, depending on the nature of the supply.
What evidence is required?
The primary requirement under UK VAT law is that the claimant must hold ‘such documents or other information’ as the Commissioners may specify or direct. This principle is found in section 24(6)(a) of the VAT Act 1994, and expanded upon in Regulation 29(2) of the VAT Regulations 1995.
In most instances, a full VAT invoice is necessary. This must identify both the supplier and the customer, describe the goods or services supplied, and meet all the standard invoice content rules. HMRC will generally disallow a claim if the invoice is made out to someone other than the VAT-registered business claiming the input tax.
However, there are exceptions – particularly for expenses such as subsistence or motoring costs incurred by employees on behalf of the business. In such cases, HMRC accepts that the invoice may name the employee, provided the cost was genuinely borne by the business. This is reflected in HMRC Notice 700, para 19.6.5.
Where the total value of a purchase is £250 or less, a less detailed VAT invoice is sufficient. Moreover, for small-value purchases under £25, no VAT invoice is required at all in specific situations. Examples of these would be public phone calls, coin-operated machines, car park charges, or tolls paid at a tollbooth.
For businesses operating under a self-billing arrangement, they may issue VAT invoices to themselves on behalf of the supplier. These arrangements are legitimate, provided both parties have agreed in writing and meet the conditions set out in the VAT regulations.
When reclaiming import VAT, it is not enough to rely on a courier’s invoice or delivery note. Instead, the claim must be supported by official HMRC documentation. This would typically be a C79 certificate, a postponed VAT statement, or evidence stamped by Customs on postal imports.
Businesses receiving services from overseas suppliers must account for VAT using the reverse charge mechanism. Although no VAT is charged by the supplier, the UK customer is treated as both the supplier and the recipient for VAT purposes. In these cases, input tax can still be recovered, but the business must retain the supplier’s invoice and evidence that the reverse charge VAT was properly accounted for.
There are also special rules for goods removed from a Customs warehouse or a Northern Ireland warehouse. Here, the business must hold a document issued or authenticated by HMRC, showing the VAT due and the claimant’s details.
In Northern Ireland, where EU acquisitions still apply post-Brexit, invoices must show the supplier’s EU VAT number and the UK purchaser’s VAT number with the ‘XI’ prefix. These invoices support the recovery of acquisition VAT.
Alternative evidence for claiming input tax
While a valid VAT invoice is the primary requirement for reclaiming input tax, HMRC may accept alternative evidence in its absence, provided it clearly supports that a taxable supply occurred and VAT was correctly charged and paid. HMRC has a duty to ensure taxpayers don’t overpay tax, but also to protect public funds, so all evidence is assessed carefully.
Practitioners should consider the following questions to determine whether there is a right to deduct in the absence of a valid VAT invoice:
- Do you have alternative documentary evidence other than an invoice, for example a supplier statement?
- Do you have evidence of receipt of a taxable supply on which VAT has been charged?
- Do you have evidence of payment?
- Do you have evidence of how the goods/services have been consumed within your business or evidence about their onward supply?
- How did you know the supplier existed?
- How was your relationship with the supplier established? For example: How was contact made? Do you know where the supplier operates from – have you been there? How do you contact them? How do you know they can supply the goods or services? If goods, how do you know they are not stolen? How do you return faulty supplies?
Where the supply is of goods not specified as subject to widespread fraud and abuse, the taxpayer can provide satisfactory alternative evidence of the supply and there are no grounds to suspect abuse or fraudulent intent on the part of the claimant, HMRC staff should normally exercise their discretion to allow the taxpayer to deduct the input tax.
Where a taxpayer fails to provide satisfactory alternative evidence of the taxable supply then it will not be authorised to deduct.
Professional standards and HMRC scrutiny
In recent years, HMRC has increased its scrutiny of VAT registration applications, particularly around the effective date of registration (EDR). This includes reviewing whether the business genuinely began making taxable supplies from the date claimed, or whether it was prematurely registered (or in some cases, delayed registration).
Practitioners must therefore take care to ensure that:
- The business’s trading activities align with the VAT registration date
- There is clear evidence of taxable supplies being made from that date
- VAT returns and input tax claims reflect the actual business activity carried out.
Failure to ensure consistency between registration and business practice can result in HMRC rejecting input tax claims, delaying registration, or even investigating the business for inaccurate or misleading information. In some cases, HMRC may argue that no valid registration existed at the time the input tax was incurred, thus disallowing the claim altogether.
Conclusion
Practitioners are reminded that they must carry out their work in accordance with the guidance set out in our technical factsheet Professional Conduct in Relation to Taxation (PCRT). This includes ensuring that VAT claims are made on the basis of accurate, complete and lawful documentation. Failure to follow this guidance may not only lead to disputes with HMRC but could also give rise to professional or regulatory concerns.
VAT input tax recovery is not automatic – it is conditional on holding and retaining the right type of documentation. While HMRC may accept a range of documents depending on the circumstances, the safest course is always to ensure that invoices are correctly addressed, complete and retained in good order. Businesses should review their internal processes regularly to minimise the risk of claims being rejected, particularly where purchases are made by employees, imports are involved, or self-billing arrangements are used.
Getting the paperwork right is not just an administrative task – it’s a critical part of securing the right to reclaim VAT, and a professional obligation under PCRT.
Further resources
