Is your VAT evidence good enough?

Recovering VAT is not simply a matter of identifying expenditure that appears to relate to the business.

You also need appropriate evidence to support the claim.

Businesses should normally obtain and retain valid VAT invoices for purchases on which input tax is reclaimed. The document should contain the information required for the type of VAT invoice being issued.

Particular care is needed where employees or directors pay business costs personally and subsequently seek reimbursement. The underlying purchase must still be for the purposes of the business and appropriate supporting evidence should be retained.

Modern accounting systems make it easy to photograph or scan receipts and attach them to transactions. This can substantially improve record keeping, provided procedures are followed consistently.

Businesses should consider establishing a routine under which invoices and receipts are captured as soon as they are received. Employees using expense applications should be encouraged to upload supporting documents when submitting claims rather than relying on paper receipts being located later.

Missing invoices can become particularly troublesome during a VAT inspection. Trying to obtain replacement documents months or years after a purchase is often much harder than capturing the evidence when the transaction occurs.

Care is also required where a supplier is not VAT registered. A document that looks like an invoice does not automatically entitle the customer to reclaim VAT.

Similarly, the fact that VAT appears to have been charged does not necessarily mean that the amount is recoverable. Restrictions apply to certain expenditure, and the purchase must normally relate to the activities of the VAT-registered business.

Good VAT records do more than satisfy HMRC. They make bookkeeping easier, improve the reliability of accounts and provide evidence that the business is claiming the VAT to which it is properly entitled.

A simple rule can help, do not regard a purchase or expense claim as complete until the necessary supporting documentation has been obtained and stored.