HMRC to disallow input tax on purchase invoices over 6 months if no proof can be provided.
Current VAT regulations state that if a payment to a supplier is overdue by more than 6 months then any input tax claimed on an earlier VAT return must be repaid to HMRC. In a recent case with Capital SMA, HMRC disallowed some input tax claimed by the company on its April 2015 return under the six- month rule. The taxpayer’s appeal was based on the argument that it had paid for the invoices by cash, highlighting cash withdrawals in the company’s bank statements to support its argument.
However, the tribunal agreed with HMRC that payment had not been made and dismissed the appeal. The company provided no evidence from suppliers confirming payment had been made, such as a payment receipt or correspondence. The amounts for cash withdrawals did not reconcile with any particular invoices.
Lessons to take away from this case include;
- using electronic payment methods to ensure there is some evidence of payment for VAT purposes.
- ask suppliers to confirm cash payments using a stamp ensuring all relevant information is on the invoice.
- Where an invoice is in dispute, then no input tax adjustment is needed if the supplier has agreed to extend the payment deadline while the problem is being resolved.