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HMRC internal manual

VAT Small and Medium Enterprises Assurance Manual

Checks on zero rating and outside the scope for outputs: scrutiny of input invoices

Purchase invoices should be scrutinised to see that:

  • they relate to goods or services consistent with the purpose of the business;
  • the supplier appears to be genuine and the goods or services provided are consistent with their trade, in so far as local knowledge provides;
  • they contain the details required to be shown on tax invoices as specified in Notice 700, Section 16;
  • the tax is correctly calculated;
  • deduction of input tax is not being claimed for items which are specifically non-deductible, or for supplies which are not used for the purpose of the business-see (VAT Input Tax;
  • input tax is not being deducted in a period earlier than that of entitlement;
  • pro-forma invoices have not been used to substantiate claims for deduction of input tax-see V1-24A Trader’s records paragraph 2.31(a);
  • the supplies were made to the business claiming the relief and not to another business with a similar name, or an unregistered supplier who has passed their materials, or parts bill to your trader in order to facilitate a VAT claim. (This is most commonly found in the context of building work or motor repairs/servicing, but any service involving parts or materials could give rise to a similar practice); and
  • the business claiming the relief did receive the supply and has not merely undertaken, perhaps for contractual reasons, to pay the cost - it may be that the true recipient is partially exempt.

If the trader is unable to produce a tax invoice to substantiate claims for input tax, but can provide some alternative evidence that tax was paid, the directions of VAT Input Tax should be followed.

  • officers should be aware that where a photocopied invoice is offered, even a certified copy, it should not be accepted on face value. Alternative evidence should be available, in genuine cases, to support the photocopied document, and a reference should be sent where there is any doubt of authenticity; and
  • if a business uses the services of self-employed workers or sub contractors VAT on expenses incurred by them is not input tax of the business (because the related supplies were made to the self employed persons for the purpose of their businesses). However, in certain circumstances when the self-employed person is not registered for VAT, a registered third party may be able to recover the VAT incurred on these expenses, if the conditions set out in Notice 700 are met.