UHY Ross Brooke Chartered Accountants

Think carefully before you destroy those records

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By Chris Davies

How important is it to keep historical VAT records?……….Very, if you read the recent Supreme Court case concerning NHS Lothian Health Board and HMRC.

This case concerned recovery of input VAT incurred over the period 1974 to 1997. Initially the tax at stake was £7M, but after correspondence between the two parties the claim was revised down to approximately £900,000.

In most situations taxpayers only have to keep VAT records for 6 years but because many of the historical records had been destroyed NHS Lothian were unable to provide evidence of the input VAT incurred nor the split between exempt and standard rated services.

In submitting their claim in 2009 for the above periods,  NHS Lothian looked at the split of their work in 2006/07 and had used that as a basis for the calculation of input VAT for earlier periods.

The Supreme Court were unimpressed by the lack of physical records and the supporting evidence. In its findings it stated ‘Proof of the amount incurred is a substantive precondition for the exercise of the right to deduct that or any amount. Generally, the taxpayer proves this by producing the VAT invoices from suppliers showing input VAT paid. Member states may, as the UK has, specify alternative evidence that can be relied on by the taxpayer.’

‘The taxpayer must present either the specified documents showing the amount of input tax incurred or devise a credible alternative method by which that amount can be estimated by HMRC with reasonable certainty that the amount now being claimed was at least close to the amount that had in fact been incurred.’

I know that many clients are anxious to destroy physical records as soon as they can, but there is a clear lesson to be learned here. Even though input VAT may have been incurred, if there is no evidence to support the claim then it will not be allowed.

Now that we have the readily available computer capabilities, maybe converting physical documents into digital format would be a prudent move before destroying documents in the future.

Now where did I put that box?

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Get in touch with us if you’re looking for help with your VAT or cloud accounting and Making Tax Digital (MTD).

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