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Further to the introduction of new anti-avoidance rules to tackle carousel fraud, HMRC have published Brief 36/07, which gives details of a revised Statement of Practice on VAT input tax deduction where there is no valid VAT invoice.

Once published, the revised Statement of Practice, which replaces the July 2003 publication, should be read by all taxpayers dealing in any of the goods subject to widespread fraud and abuse, namely:

• computers and any other equipment, including parts, accessories and software, made or adapted for use in connection with computers or computer systems;
• telephones and any other equipment, including parts and accessories, made or adapted for use in connection with telephones or telecommunications;
• alcohol - those alcoholic liquors liable to excise duty, which are defined by section 1 of the Alcoholic Liquor Duties Act 1979 or in any regulations made under that Act (e.g. spirits, wines and fortified wines, made-wines, beer, cider and perry); and
• oils - all oils that are held out for sale as road fuel.

The revised version of the statement of practice continues to apply in cases where an invalid invoice is held. It does not apply where HMRC are not satisfied that a supply has taken place or are questioning the underlying supply. It incorporates a number of changes to reflect developments in this area and includes:

• clarification on a trader's right to deduct input tax in circumstances where HMRC question whether there is an underlying supply;
•  information about invoices reflecting amendments to Regulations 14 (Contents of VAT invoice) and 16 (Retailers’ invoices) of the Value Added Tax Regulations 1995 brought about by SI 2003/3220;
• details of the requirement to provide evidence of a supply having being made in circumstances where no valid invoice is held; how such a supply must be for its recipient’s business; details of checks needing to be made to establish the bona fides of a supplier; evidence of normal commercial arrangements, including payment arrangements and details of how the relationship between the supplier and buyer was established.

The revised Statement takes effect from the date of its publication. HMRC guidance will be updated shortly to reflect these changes.

Links

HMRC Brief: 36/07

Input Tax deduction without a valid VAT invoice - Statement of Practice July 03