VAT purchases is another area on which HMRC is becoming more aggressive. They have always been particular but recent indications are that they are looking more closely at VAT reclaimed.
Legally, in order to claim VAT back on supplies you receive, you must be able to show the records to prove that you purchased and received the items.
Your documentation should comply with the rules defining what constitutes a valid VAT invoice. Pro-forma invoices, statements and delivery notes are not sufficient. As well as the invoice, you should also be able to prove that you actually paid the invoice.
A recent tribunal case against a Leicester clothing manufacturer hinged on the additional evidence.
In some cases, even though the company had VAT invoices, they couldn’t prove the goods had been received.
In other cases, the company couldn’t prove the goods had been paid for. In one case, the company claimed to have netted off an invoice from a supplier against an invoice they had issued.
The issues were exacerbated because some of the suppliers had gone out of business. This is more common than you might think because HMRC might be looking at claims made up to four years (or more) previously and a lot of businesses will have closed and records lost.
HMRC find a lot of “false invoice” fraud where a fictitious invoice is created and put into the records to channel funds from the company. This may be a rogue employee defrauding the company without the knowledge of the owners – but, even if this is the case, the company will become liable for the VAT.
Over the last few years we have come across a few of these cases among our clients. One enterprising employee falsified invoices from a supplier and managed to divert the payment to their own account. Amount involved was around £40,000.
The expectation is that a VAT Inspector will not necessarily believe that VAT has been reclaimed correctly and will want to see full evidence of the transaction. They may accept other evidence, particularly if the supplier is still trading and their records can be checked.
The lesson for you is to ensure you have proper invoices and receipts for all purchases.
VAT is just one of the many areas we are proficient in. We are happy to either complete your VAT Returns or carry out basic checks for you. Give us a call today (01509 816150) or complete the enquiry form below. We would love to help you with your accounts and VAT.