Commentary

V7.444A Other conditions for claiming input tax

Part V7 Tax planning
Part V7 Tax planning | Commentary

V7.444A Other conditions for claiming input tax

Part V7 Tax planning | Commentary

V7.444A Other conditions for claiming input tax

The approach of a business playing safe and charging 20% VAT on the basis that the customer is VAT registered and can reclaim input tax is one that can backfire very badly. It is important that both the 5% rate of VAT and zero-rating (or exemption) are identified and charged where appropriate. This is because a business can only claim input tax where the VAT has been correctly charged in the first place.

A case that related to input tax issues was the case of Inayat Gulam Hussein ([2009] UKFTT 348 (TC)). The case related to input tax evidence but the tribunal chairman usefully summarised the four key conditions for an input tax claim to be correct in accordance with the legislation (VATA 1994, s 25 and SI 1995/2518, reg 29(2)(a)) as follows.

  1.  

    •     A supply must have taken place.

  2.  

    •     The input tax credit must be claimed by the taxable person to whom the supply is made.

  3.  

    •     The supply must be chargeable to tax at the rate claimed.

  4.  

    •     The claimant must hold satisfactory evidence of his entitlement to input tax credit.

Example 7

Mike receives a routine VAT visit from HMRC and the officer has queried an input tax claim of £10,000 made in relation to some building work. The officer rules that the charge of £50,000 plus VAT should have been zero-rated.

He disallows input tax of £10,000 – Mike must approach the builder for a VAT credit and

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