To reclaim VAT on expenses you need –
- Full VAT invoices for most transactions
- Modified invoices for retail supplies over £250
- Simplified invoices for any purchases under £250
Full VAT invoice
The full VAT invoice will have a unique invoice number, the supplier’s business name and address, their VAT registration number, your business name and address, a description of the goods or service, the total amount excluding VAT, the total amount of VAT, and other details as required by law.
Modified VAT invoice
Similar to the full invoice, a modified invoice shows VAT inclusive rather than VAT exclusive values.
Simplified VAT invoice
As the name suggests, a simplified VAT invoice gives less information. It will state the total charge (inc VAT) but it won’t include a breakdown of the VAT charges applied, your business name and address, or other details that you would normally expect to see on full or modified VAT invoices.
Points to remember
- You can only reclaim VAT on expenses incurred through trading activities, and only if your business is registered for VAT.
- Only VAT registered businesses can issue VAT invoices to their customers.
- There is no obligation on retail sellers to issue a VAT invoice to an unregistered business, so you should always ask for one when making your purchase.
- If you want to reclaim the VAT on goods or services costing more than £250 (inc VAT) you will need either a full or modified VAT invoice.
- You will need a simplified VAT invoice if you wish to reclaim the VAT on goods or services costing less than £250 (inc VAT).
- You must keep all invoices for standard-rated, reduced-rated and zero-rated supplies that you receive for your business.
- Invoices can be paper or electronic, but they must be stored in a way that makes them easily presentable to HMRC on request.
Missing or invalid invoices
Inevitably invoices go missing. Your invoices may be wrongly formatted. Or addressed to another individual or organisation. There may be other reasons why you can’t produce a valid invoice – your supplier having ceased trading, for example.
Does that mean you won’t be able to reclaim the VAT you paid?
Not exactly.
According to HMRC’s own internal manual, alternative evidence may be presented to support your claim –
“HMRC staff will not simply refuse a claim without giving reasonable consideration to such evidence… HMRC staff should normally exercise their discretion to allow the taxpayer to deduct the input tax.”
(Citation – VAT Input Tax)
The burden of proof is yours
You must be able to satisfy HMRC that the purchase actually took place, and that it was a purchase for your business. You must provide alternative documentary evidence to show show that VAT has been charged on the supply, and you paid it.
The quality of evidence required, and the amount of persuasion needed to satisfy a VAT inspector, will depend upon the amount you’re claiming and the type of goods and services involved.
For supplies of £25 (inc VAT), or less, you needn’t worry too much if you can show that the supplier was VAT registered. For larger sums, a corresponding entry on a bank statement which can be linked to the supplier might be regarded as sufficient evidence.
Top tip. If you’ve lost a VAT invoice or it is damaged and no longer readable, ask the supplier for a duplicate wherever possible. (This is especially important in the case of goods subject to fraud and abuse – computers and peripherals, telephones and accessories, alcohol and road fuel, for example.) Keeping proper VAT records is a lot less hassle than a visit from one of HMRC’s VAT inspectors!
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