Replies to Queries -- 1 - Dodgy builder

A client had some building work done. Interim architect certificates show VAT being charged, but no final VAT invoice was received from the builder on completion, as he was made bankrupt and disappeared.

Can our client reclaim the input VAT incurred?

(Query T15,804) – Wetherby.

It sounds as if the client may be in trouble for lack of an invoice at all, let alone a tax invoice. The architect's certificates are only relevant insofar as they establish the VAT was being collected by the builder on top of the value of the work done. They will not amount to tax invoices in themselves, being issued by the architect, not the builder and, presumably, not giving the latter's VAT number.

Tax invoices should of course have been issued by the builder each time a payment was received. The paucity of information provided suggests that this was not done - in which case did the client reclaim the VAT on the basis of the certificate, instead of chasing up the builder as he should have?

If my surmise, that no tax invoice for any part of the money paid is held, is correct, Customs will certainly challenge any claim for input tax. The problem is likely to be that they have not collected it from the builder. Indeed, there may not even be any record of his liability in such records as he may have kept, supposing that these are still available. Given that he has not just gone bankrupt but has also disappeared, one must fear the worst!

Tribunal decisions in the past have allowed input tax without a tax invoice where the tribunal was satisfied that a supply had been received. In particular, it has been held that an invoice from a supplier, who is not registered but should be, can be taken to include VAT. Most of the other cases have concerned situations in which Customs have specifically not taken the tax invoice point because their argument has been that there was no supply and thus no right to recover, never mind the documentation. Of course, there are also numerous cases in which Customs have succeeded with assessments raised in the absence of tax invoices, typically because, for individual expenses for which the tax invoices are missing, it is not possible to prove that specific supplies were received.

Here, I assume that there is a contract for the work and that the architect certified the total value paid, in which case there is good evidence of the supply. I suggest the querist writes to Customs enclosing this evidence and stating that his client intends to recover the VAT on the basis that he can show it was paid to the builder, even though the latter failed to issue a tax invoice. With luck, Customs will accept this. If not, I would lodge an appeal to the tribunal and then write to Customs asking them to justify their reliance on the absence of the tax invoice, given previous policy in many other cases not to do so where the existence and the value of the supply could be proven. – A St J Price.

It is necessary to look at the law. Regulation 29(2) of the VAT General Regulations SI 1995 No 2518 requires a VAT invoice to be held but provides that 'where the Commissioners so direct …, a claimant shall hold instead of … the invoice, such other documentary evidence of the charge to VAT as the Commissioners may direct'.

Customs therefore have a discretion to accept a claim and in this case the documentary evidence, the interim architect's certificates and proof of payment should be adequate evidence of a genuine supply by the builder and of a tax point. The tribunals have a supervisory jurisdiction over such discretions and can correct the exercise of a discretion if Customs have given no weight, or insufficient weight, to a relevant consideration. – R.N.G.

Issue: 3807 / Categories: