Chapter 9 - When to Recover

Question 1

Introduction

Answer 1

As a general rule, when input VAT is incurred by a taxable person it is available for credit. It is deducted from output tax and hence recovered from HMRC.
If the input tax on a VAT return exceeds output tax, HMRC will make a repayment of the net amount

Question 2

Conditions

Answer 2

Must meet the following before input tax is available for credit:

• 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 same time
• the supply of goods or services must have been made for a business purpose
• the claimant must hold the required evidence
• input tax on supply must have been charged correctly
• must have a direct and immediate link with taxable supplies
• input tax must not be specifically blocked from credit

Question 3

Supply Made to the Taxable Person

Answer 3

It is not acceptable for a supply to be made to somebody else other than the taxable person who is seeking to recover the input VAT on that supply.
In practice, HMRC give credit in respect of expenses that are specifically reimbursed.

Question 4

Supply for Business Purposes

Answer 4

Where input tax is incurred for a part business purpose then recovery can be apportioned. Only the business part is available for credit

Question 5

Blocked Input Tax

Answer 5

In certain cases, input tax is specifically irrecoverable. The blocking order is on:
- business entertaining; and
- motor cars
Input tax for either can never be recovered.
Note: entertaining overseas customers is recoverable