Is VAT recovery possible in the absence of proper invoices?

Who this will interest: Businesses trading in the UK

Key point(s): VAT recovery is possible even in cases where the invoices are not fully compliant as long as alternative evidence can be used.

Essentia’s take: A welcome reassertion of the right to VAT recovery without a correct VAT invoice if reasonable alternative evidence is necessary; but regrettable that it took a tribunal to force HMRC grant what is a crystal clear right under the law.

Action points: Businesses trading in the UK should always check if their supplier invoices  are valid. To avoid issues alternative evidence should always be collected and made available as it can help justify recovery in some cases.

In detail

Athena Luxe is a UK established and VAT registered business that sells luxury goods mostly to non-UK customers. The business acquires the goods from luxury brands such as Harrods, Louis Vuitton UK, Patek Philippe and others in the UK and pays UK VAT on the purchases.

Most of the goods sold by Athena Luxe are shipped abroad and are therefore zero rated for VAT purposes. The business is therefore usually in a VAT credit position and had applied for a refund of the VAT with HMRC.

VAT corresponding to certain costs from the period July 2023 to September 2023 were not refunded by HMRC on the grounds that the some of the supplier invoices were not compliant. The main issues raised by HMRC were:

• Some invoices were issued to employees of Athena Luxe instead of the business (mostly Louis Vuitton invoices). The supplier had refused to amend the invoices.
• Certain invoices did not have sufficient information to qualify as compliant invoices for VAT purposes (Harrods invoices).

In both cases Athena Luxe had provided additional evidence such as till receipts, credit card statements and others.

HMRC refused to exercise its discretion and accept alternative evidence in relation to the invoices and therefore rejected the right to recover the VAT on those costs.

The Court’s decision

The First Tier Tribunal (FTT) was asked to provide its view and concluded that in both cases sufficient evidence had been provided to show that Athena Lux had in fact acquired the goods in question and used them for business purposes. HMRC had accepted that business payments were made and had not shown a systematic failure by Athena to obtain invoices.

The FTT concluded that:

• For the Louis Vuitton invoices, although they were not valid, HMRC was unreasonable to not exercise its discretion given the evidence provided. The VAT should therefore be recoverable
• The Harrods invoices were in fact valid based on existing case law.

Therefore the VAT should have been refunded by HMRC on these invoices.

What does it mean to businesses

This is an FTT judgement which means HMRC can appeal the decision. However, the decision is a reminder that VAT recovery is possible even if the invoices are not fully compliant as long as alternative evidence can be provided by the tax payers.

Furthermore, the decision also shows HMRC cannot simply reject the use of discretion in accepting alternative evidence and should use it if such evidence is sufficient.