Chapter 20 Input Tax – when to recover Flashcards
20.1 Introduction
Generally when input VAT is incurred it is available for credit. It is deducted from output VAT and recovered from HMRC. If input exceed output, HMRC will make a repayment of the bet amount. The conditions that need to be met before input tax is available for credit are:
• A supply of goods or services is being made
• This supply must be made to the taxable person and the trader is a taxable person at the time the supply was made
• The supply of goods or services must have been made for a business purpose
• The claimant must hold the requirement evidence of their purchase
• Input tax on the supply must have been correctly charged
• The goods or services being supplied must have a direct and immediate link with taxable supplies made by the business
• The input tax must not be specifically blocked from credit
20.2 Supply for business purposes
If a supply is partly purchased for business purposes, the input tax has to be apportioned and only the input tax which relates to the business purposes is available for credit.
20.3 Claimant holds required evidence
Input tax is only available for credit if the required evidence is available. The most common form is a tax invoice for the supplies that have been purchased. HMRC accept other documentary evidence as the required evidence but this is at their decision.
20.4 Blocked Input tax
In certain cases input tax is specifically irrecoverable. The blocking order includes input tax on business entertaining and motor cars. Business entertainment is entertainment provided by a person in connection with a business but does not include the provision of any such entertainment for either:
• Employees of the taxable person, or
• If the taxable person is a company, its directors or persons engaged in the management of the company.
HMRC accept staff entertainment as this is done for the purposes of the business. Vans and the repairs on cars are not blocked by HMRC. Another exception for cars is if on the purchase of the care exclusive business use in intended. The condition is not satisfied where the person intends to make the car available to any person for private use.
