VATF36233 - What to consider prior to determining whether to use an intervention: matters to consider when looking at particular types of taxable person or activity: box breaking and box consolidation: issues to consider: is the invoice a valid VAT invoice?
You should read VIT30500, VIT31000 and VIT31200 of the Input Tax guidance manual and VATF36250.
Does the invoice comply with Regulations 16(1) or 14(1) of the VAT Regulations?
Regulation 16(1) of the VAT Regulations 1995 (SI 1995/2518) states that a retailer can provide a ‘less detailed’ VAT invoice if the taxable supply does not exceed £250. For taxable supplies over £250 the Regulation requires that the retailer must issue a full VAT invoice if requested to do so by their customer, and that invoice must meet the criteria set out in Regulation 14(1).
In many cases the purchase price of the mobile phone is above the £250 limit, which means that any claim to input tax must be supported by a VAT invoice that fully meets the criteria set out in Regulation 14(1). Where the box breaker or box consolidator presents an invoice for goods above £250 that does not fully meet the criteria set out in Regulation 14(1) that invoice is invalid.
You should also consider who the invoice is actually made out to. If it is not made out to the box breaker or box consolidator then you will need to ascertain whether it is made out to an employee, family member etc (VATF36232).
Before denying input tax you must first consider whether to allow deduction using HMRC’s discretion.
HMRC’s discretion
HMRC’s discretion is set out in a Statement of Practice (VATF42500). You must follow the guidance set out in VIT31200 of the Input Tax guidance manual.
Where a taxable person does not hold a proper tax invoice, HMRC has the discretion whether or not to allow recovery of the input tax on the basis of alternative evidence. Therefore, before making a decision to deny input tax on the grounds of no valid tax invoice, you need to give the taxable person a reasonable opportunity to
- go back to their supplier and obtain a proper tax invoice or
- provide alternative evidence of receipt of the alleged taxable supplies.
It is important to bear in mind that the onus is on the taxable person to prove that they received the alleged taxable supplies. It is reasonable to expect the taxable person to provide a proper audit trail, which should enable you to trace the source of the cash, gift card etc used to make any particular purchase and should reconcile the cash accurately to the total value of alleged purchases.
Where the box breaker or box consolidator has used employees, family members etc to make the purchases, please see VATF36232.