Andrew Needham highlights some tips and traps on claiming back input tax.
The basic rule is that a business should claim back its VAT on the VAT return for the period the purchase invoice is dated in.
What about late invoices?
If a business receives an invoice late, but it is dated within the VAT period and the return has not been submitted, then it can still be included on that VAT return. So if an invoice is received on 25 April 2014 that is dated 31 March 2014, it can still be included on the 03/14 VAT return.
But what happens if you receive an invoice after you have closed down your purchase ledger? HMRC accepts that a business can reclaim input tax late at any time up to four years after the date of the invoice. But HMRC guidance only refers to claiming VAT late because the business did not have the necessary evidence at the right time.
Presumably, on the grounds of practicality, HMRC would not usually object to claiming the VAT back on a return within the four-year limit if the invoice had been held, but was overlooked or, perhaps, if the VAT had been incorrectly thought to be irrecoverable on an individual invoice.
Technically, if the VAT amount was over £10,000 or 1% of turnover as declared on the VAT return for the period in which the errors are found, subject to an upper limit of £50,000, a separate voluntary disclosure may be necessary using the form VAT 652, but if every business that claimed back VAT in a later period did this HMRC would be overwhelmed with claims!
Exception to the 4 year rule
If you have a supplier that was not registered for VAT and HMRC subsequently finds out that it should have been and backdates a VAT registration, the supplier may raise a VAT only invoice for the VAT it should have charged. In that case, if the supplies date back more than 4 years HMRC will still allow VAT recovery as you were not in possession of a valid VAT invoice at the time.
Input tax accruals
The right to claim back input VAT arises when the VAT was charged, the tax point. The vast majority of businesses post purchase invoices onto their accounting systems only when they have been approved for payment. Therefore, at the end of a VAT period there can be a number of invoices dated within the period but not yet entered into the accounting system and the VAT not claimed. You can make a manual accrual of this input VAT without asking HMRC’s permission.
Beware a possible trap. Don’t forget to adjust it on your computer system at the end of the next period so that you don’t claim it twice!
Don’t forget bad debt relief
If you claim back the VAT on an invoice but then don’t pay it, if for example you have a dispute with the supplier, then you have to repay the input tax that you have claimed if the invoice has gone unpaid for a period of 6 months. If you subsequently pay the invoice then you can reclaim the VAT again at that time.
If you make part payment of a disputed invoice you only need to adjust the VAT on the element that remains unpaid.
Practical Tip:
You should claim back your input VAT in the period that you incur it, but HMRC will allow you to reclaim VAT up to four years after the invoice date. If you don’t pay an invoice don’t forget to make a bad debt relief adjustment.
