HMRC’s eight basic conditions that must be satisfied for a business to reclaim their input tax:
1. a SUPPLY of goods or services has been made;
2. the supply was made to a TAXABLE PERSON;
3. the supply must have been made for a BUSINESS PURPOSE;
4. the supply was made to the PERSON CLAIMING THE DEDUCTION;
5. the recipient INTENDS to use the goods or services for the purposes of their business;
6. the goods or services supplies must have a DIRECT AND IMMEDIATE LINK to a taxable transaction; and
7. input tax must have been CORRECTLY CHARGED.
8. HMRC will only repay input VAT to a taxpayer if it holds a VALID VAT INVOICE, or acceptable alternative documentary evidence.
The case above relates to point 8: VALID VAT INVOICE
The Right to Deduct Input Tax in the Absence of invoices – ECJ Case C-664/16 (Vadan)
Mr Vadan is Romanian property developer. At a certain moment, Mr Vadan’s turnover exceeded the VAT registration threshold. Therefore, the Romanian tax authorities registered him as taxable person and assessed him on output VAT but denying him input VAT as he did not maintain VAT invoices. the output VAT on a Court commissioned Expert report. Vadan argued that he should be able to deduct all input VAT based on the same Court commissioned Expert report used to workout output VAT.
The judgement was that “a taxable person who is unable to prove the amount of tax VAT that it has paid upstream, by the production of invoices or any other document, cannot benefit from a right to deduct VAT on the sole basis of an estimate resulting from an expert report ordered by a national jurisdiction.”
A properly drawn up invoice is the ‘ticket of admission’ to the right of deduction.