VAT review ― input tax

Produced by Tolley
VAT review ― input tax

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • VAT review ― input tax
  • Record keeping
  • Pre / post registration input tax
  • Private and non-business use
  • Partial exemption
  • Capital goods scheme
  • Business entertainment
  • Cars and motoring expenses
  • Gifts and samples
  • International transactions
  • More...

This guidance note is intended to provide an overview of the areas that should be reviewed as part of a VAT review of the input tax reclaimed by the business. This document should be used in conjunction with the Checklist ― VAT review ― input tax when undertaking the actual review in order to ensure that all relevant items have been covered.

Businesses may also wish to undertake an output tax review at the same time and more information can be found in the VAT review ― output tax guidance note and Checklist ― VAT review ― output VAT template.

Record keeping

A review of the input VAT posting before the VAT return is submitted will help to ensure that the return figures are correct. The following list provides details of the most common errors:

  1. duplicate input tax claims, often due to businesses reclaiming VAT on a proforma invoice / request for payment as well as the actual tax invoice received from a supplier. Many businesses refuse to accept proforma invoices in order to minimise the risk of duplicate payments and input tax claims

  2. incorrect amount of input tax calculated on VAT inclusive invoices / receipts

  3. net and VAT amounts are transposed

  4. VAT incorrectly calculated on invoices where the supplier has reduced the VAT amount because they have offered an early payment or settlement discount (please note the rules have changed so this error will be less common going forward)

  5. reclaiming input tax on exempt or zero-rated purchases, eg train and air fares, books and magazines, insurance and stamps ― see the Overview ― zero-rating and Exemption ― overview ― items that are exempt from VAT guidance notes for more information

  6. input tax is reclaimed on overseas expenses (see the Overseas VAT refunds guidance note for the correct procedure)

  7. insurance premium tax is incorrectly recovered ― see the Other indirect taxes guidance note for more information

  8. credit notes for purchases incorrectly posted and VAT recovered in error

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