Reclaiming input tax

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A recent tax case highlighted the requirement that purchases must be actually paid for in order to secure tax relief.  This is true in income tax, corporate tax and VAT.

For VAT purposes, if a purchase invoice remains unpaid for more than six months after the due date and VAT input tax has been reclaimed on an earlier return, then the input tax claim must now be reversed. The claim for input tax can be reinstated on the next return after actual payment if and when that occurs.

In the recent case Capital SMA Ltd (TC5991) input tax claims were denied because there was no evidence that the relevant purchase invoices had ever been paid.  If paying purchase invoices from sources other than the main business bank account or credit card then it is important to obtain and keep evidence of the payment, such as receipt documents from the supplier.

David Wilsdon

As with all of our tax tips and web pages this information is necessarily summarised and of a general nature.  If you would like detailed specific advice please contact us.