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HMRC internal manual

VAT Input Tax

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HM Revenue & Customs
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VAT Input Tax basics: recipient of supply

Only the person to whom the supply was made can make a valid input tax claim. This is a fundamental principle. It overrides the question of who may have paid for the supply. It also overrides the question of who may hold the relevant invoice or other evidence.

Sometimes it is common practice for a third party to pay for goods or services which are supplied to someone else. Examples of where this is likely to occur include:

  • payment of legal costs awarded against the unsuccessful party in litigation (see VIT13500);
  • payment of a landlord’s costs by a tenant for the drawing up of a lease; and
  • payment by a business of the costs of a viability study undertaken by a bank in respect of the business’ activities (see VIT41000).

When this happens the person making the payment does not have the right to deduct input tax. This applies whether the payment was made due to a legal requirement or is normal commercial practice. Only the recipient of the supplies is entitled to recover input tax.

You should also be aware of the House of Lords decision in Redrow Group plc (see VIT61330). This is often wrongly seen as precedent for allowing a trader to claim input tax because it paid for a service. Our policy on this is set out at VATSC Supply and Consideration.

It is not always clear who was the recipient of a supply and therefore entitled to claim input tax. Cases such as D & K Builders and Sons (Ampthill) Ltd , P&O European Ferries (Dover) Ltd and The Plessey Company Ltd show the importance of looking beyond the immediate evidence. See VIT61330 for more on these cases.

You should note that the decision in P&O European Ferries (Dover) Ltd was based on very particular and unusual facts. Most apparently similar cases can be distinguished on the facts.