VAT CASES - 28.11.2019

Alternative evidence not sufficient to displace assessment

The case. Wasteaway Shropshire Ltd (WS) made many basic errors on its returns. Input tax was claimed on payments that were either exempt or outside the scope of VAT, e.g. insurance and bank charges; 20% input tax was claimed on invoices subject to 0% and 5% VAT; purchase invoices were missing, supposedly lost when the company was evicted from its trading premises by the landlord; input tax claims were duplicated on the same supplies and also claimed on private and non-business expenses, e.g. clothes. It transpired that the VAT returns had been prepared using the bank accounts with little inspection or analysis of actual invoices.

The law. HMRC has the power to accept alternative evidence to support a claim for input tax in the absence of a proper tax invoice. However, this evidence must be sufficient to show that VAT has been paid to a registered supplier for an expense that relates to taxable business purposes.

The decision. WS’s director argued that only £3,289 of the assessed amount of £20,593 was correct but his appeal failed on all accounts, and the assessment was upheld. The judge described the record keeping as “sketchy, incomplete and unreliable” . It probably didn’t help that the director had been involved with a previous business and had been found wanting in respect of the record keeping there. It was also clear from a statement provided by WS’s former landlady that whilst the company had been evicted from her premises, this was not done with no notice as the director had claimed. In fact, there had been a two-week period where asset owners had accessed the property and recovered items.

Key points. The director’s main argument was that payments made through WS’s business bank account should be sufficient evidence for input tax purposes. But he failed to recognise that the onus is on himself as a company director to ensure adequate evidence is held to support input tax claims, otherwise HMRC can use its “best judgement” to disallow claims and raise an assessment.