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HMRC internal manual

VAT Input Tax

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HM Revenue & Customs
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Legal history: cases about definition of input tax

Please note that the following material is not a full summary of the case - it merely highlights the principle referred to in the appropriate section of this manual.

Ahmed (M) t/as New Touch VTD 20119

The taxpayer had received invoices issued after the supplier had been deregistered and claimed the VAT on them as input tax. The tribunal dismissed the appeal. It held that, “the only way in which a taxpayer can claim a deduction for input tax is to satisfy specific evidential requirements which have built in to them a measure of discretion conferred on the Commissioners”.

Da Conti International Ltd VTD 6215

A UK company bought a yacht and reclaimed input tax. The tribunal ruled that, since the yacht was moored in Greece, the supply had taken place outside the UK and was not subject to UK VAT.

Ellen Garage (Oldham) Ltd VTD 12407

Ellen Garage engaged a contractor to build four industrial units. Payment was made in cash on a weekly basis. On completion of the work the contractor issued an invoice showing an amount of VAT due. The invoice showed a false registration number and the contractor was not registered for VAT. The tribunal found that the contractor was a taxable person because his turnover clearly exceeded the registration threshold. Therefore Ellen Garage was entitled to credit for the input tax.

Hargreaves (UK) plc VTD 20382

Hargreaves and another company in its VAT group bought fuel for their haulage businesses. This fuel was illegal for use in road vehicles. Invoices for the fuel showed the names of deregistered companies and were invalid. The tribunal concluded that the taxpayer failed to exercise sufficient care and judgment to ensure that it received genuine taxable supplies of fuel from taxable persons. The tribunal also considered that a principle established by the European Court of Justice could be applied in this case. The principle is that a taxable person who knows, or should have known, that by making a purchase he was taking part in a transaction connected with the fraudulent evasion of VAT, must be regarded as a participant in that fraud. The tribunal therefore rejected Hargreaves’ claim to input tax.

Pennystar Ltd 1996 STC 163

Pennystar claimed input tax on a payment for some computers which in fact were not delivered. The court held that the property in the computers had never passed to Pennystar and there had been no supply. Therefore Pennystar was not entitled to input tax.