AC-2023-LON-000068 - [2025] EWHC 2312 (Admin)

The third policy Guidance document is VAT guide (VAT Notice 700). It too has a hot-linked contents section. It is as follows:

“Contents

• — 1 . Overview

• — 2. Administration of VAT

• — 3. Introduction and liability to VAT

• — 4. The basic rules for VAT

• — 5. VAT imports and exports. Movement of goods between Northern Ireland

and EU, and Great Britain and Northern Ireland

• — 6. Registering for VAT

• — 7. Introduction to output tax

• — 8. Output tax for particular situations

• — 9. Output tax for business and non-business use

• — 10. Introduction to input tax

• — 11. Input tax when VAT paid on goods and services received before VAT

registration

• — 12. Input tax effect on subsistence, staff entertainment and domestic

accommodation expenses”

The totality of the relevant Guidance in this document is in the following terms:

“16.8

Invalid invoice procedure

16.8.1

What to do if you hold an invalid VAT invoice

Valid VAT invoices provide evidence for claiming input tax. An invalid invoice is one which falls short of any of the requirements set out in paragraphs 16.3 or 16.6. If you hold an invalid invoice the first thing you must do is go back to your supplier and request an invoice which meets these requirements. If you cannot do this, and can evidence why, you’ll need to satisfy HMRC that the following conditions have been met:

• there’s actually been a supply of goods or services

• that supply takes place in the UK

• it’s taxable at the standard rate or reduced rate of VAT

• the supplier is a taxable person, that’s someone either registered for VAT in the

UK, or required to be registered

• the supply is made to the person claiming the input tax

• the recipient is a taxable person at the time the VAT was incurred

• the recipient intends to use the goods or services for business purposes

You must also hold other evidence to show that the supply or transaction occurred.

16.8.2

When and how HMRC will exercise its discretion

HMRC’s discretion to allow a claim for input tax can only be used when there’s sufficient evidence to satisfy HMRC that a supply has taken place (read paragraph 16.8.1).

Where it’s satisfied that the business has taken reasonable steps to comply with the legislation, and that the supply has taken place, HMRC may consider exercising its discretion. But, where a business has systematically failed to obtain a valid VAT invoice HMRC will not consider exercising its discretion.

Where a supply has taken place, but the invoice to support this is invalid, HMRC may exercise its discretion and allow a claim for input tax. But this will depend on the evidence held to show that the supply or transaction occurred and that the supply has been made to the person claiming the input tax.

16.8.3

What evidence you’ll need to be provide

Your evidence should show that a supply occurred on which VAT was charged. There’s no prescriptive list of the type of evidence required, as circumstances will vary. Suitable evidence might include:

• bank statements clearly showing payment of the supply to the supplier

• purchase orders

• evidence of how you identified your supplier and your negotiations with them

• contracts between you and your supplier

• documents evidencing the transportation, storage or insurance of the goods

• any other documents that show a supply took place between you and your

supplier

This list is not exhaustive.”

HMRC state that this document is the operative or predominant applicable policy document. Their submission was that 16.8.2 applies to the current situation and they place particular reliance on the phrase “where a business has systematically failed to obtain a valid VAT invoice”.

Again, however, the heading suggests the section applies only to situations where an invoice is held - it purports to describe an “Invalid invoice procedure”, it refers in the first paragraph 16.8.1 to what an invalid invoice is, and how a taxpayer must go back to his supplier and ask for a valid one, and so forth.

The second paragraph which HMRC says is operative in the present case, explains how HMRC then exercises its discretion – and that it can only be exercised in someone’s favour where there is evidence of the requisite matters – and reference is made back to 16.1.

It was this paragraph that the decision-maker said he applied when making the decision to refuse ECNs 3 and 4.