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HMRC internal manual

VAT Fraud

What to consider prior to determining whether to use an intervention: matters to consider when looking at particular types of taxable person or activity: labour providers: evidence to support input tax claims

Where you have no particular reason to doubt that the input tax relates to taxable supplies received, you should then proceed to consider the other fundamental requirement for input tax deduction - the requirement to hold a valid tax invoice (see also VATF42400 and VATF42500). This requirement is specified in VAT Regulation 29(2)(a), and the information that a valid VAT invoice is required to contain is specified in VAT Regulation 14(1). These requirements include the name, address and VAT registration number of the supplier. The registration number must be one that was valid at the time of the supply. Also among the requirements for a valid VAT invoice are:

Regulation 14(1)(g) - ‘a description sufficient to identify the goods or services supplied’; and

Regulation 14(1)(h) - ‘for each description, the quantity of the goods, or the extent of the services, and the rate of VAT and the amount payable, excluding VAT, expressed in any currency’.

Where an invoice does not fully comply with these requirements it is technically invalid and the holder of the invoice has no right to deduct the VAT shown as input tax.

The question of what constitutes a ‘sufficient’ description and the meaning of ‘the extent of the services’ can be contentious in the context of labour provision. Where the invoices themselves do not contain a sufficient description, but there is clear cross-referencing to other records which do (e.g. supporting schedules), then this can be accepted for the purposes of meeting the requirements of Regulation 14(1).

If invoices describe the supply by labour providers as merely ‘labour supplied’ the officer is entitled to seek further evidence from the trader to establish the extent of the services provided, e.g. numbers of workers engaged, hours and dates worked and sites where workers were used etc.

However, you should bear in mind that if the supply is of labour-only services it may not be reasonable to expect details of the nature of the work undertaken to be shown on the invoices. This is because the labour provider’s role may be to supply specified numbers of workers for specified hours, who will then come under the direction of the labour provider’s customer.

Nevertheless, if invoices do not specify minimum information such as numbers of workers, number of hours, dates of work and site addresses, and such information is not readily available through clear cross-referencing to supporting records, it may be appropriate to regard the invoices as invalid.

If you are unsure about the application of the above guidance in particular cases you should consult the SI Technical Team (for SI cases) or the VAT Fraud Team (who will consult the VAT Deductions & Financial Services team if necessary) for further advice.

VATF36150 looks at Regulation 29(2) and alternative evidence.