Valid VAT invoices and HMRC's discretion

The FTT in Eurocent (Buckingham) Limited v HMRC [2025] UKFTT 1253 has again considered HMRC’s powers to allow or disallow input VAT recovery in the context of VAT invoices. The decision demonstrates that the question whether a VAT invoice is valid is separate to the question whether the relevant supplies took place at all. In this case, HMRC’s decision letter focussed only on the question whether the invoices were valid and, if not, whether they should have exercised their discretion under regulation 29(2) to allow input VAT recovery in the absence of a valid VAT invoice. In those circumstances, they were not entitled to raise broader questions concerning whether or not the actual supplies took place at all where it was held that the invoices were valid VAT invoices compliant with regulation 14.

Background

The case concerned whether Eurocent was entitled to reclaim input VAT on fees incurred in connection with the purchase of a parade of let retail units known as Cornwall Place. Eurocent held two invoices connected with the transaction, one from BHNV Development Ltd and a second from Colridge Ltd. The BHNV invoice for £230,000 specified a range of consultancy services, including sourcing the property, managing the sale process, advising on a successful change of use etc. The Colridge invoice for £24,800 simply stated “Introduction”. Eurocent claimed input VAT recovery for both invoices, which HMRC partially denied on the grounds that the invoices were not valid and that there was insufficient alternative evidence to support HMRC using its discretion under VAT Regulations 1995 regulation 29(2) to allow input VAT recovery.

FTT decision

The FTT has allowed the appeal in part.

The FTT held that Eurocent was entitled to reclaim input VAT on the BHNV Development invoice because it was a valid VAT invoice for the purposes of VAT Regulations 1995 regulation 14(1). The Tribunal held that the inclusion of only one date on the invoice was sufficient where the date of supply and the invoice date were the same, and the description of services provided was detailed enough to meet the requirements of regulation 14.

HMRC, however, also sought to deny input VAT before the FTT on the basis that there was insufficient evidence that the supplies had taken place at all. However, the FTT noted that the decision letter under appeal had only denied input VAT on the basis that Eurocent did not hold a valid VAT invoice and HMRC had not been required to use its discretion to allow input VAT in the absence of a valid VAT invoice. Whilst it was, of course, a requirement for input VAT recovery that the supplies had taken place, the decision letter had not raised that argument and it was not possible for HMRC to use its discretion under regulation 29 to deny input VAT on that basis. The FTT pointed out that HMRC’s discretion under regulation 29(2) only applies where the taxpayer does not hold a valid VAT invoice and where a trader does hold a valid invoice, HMRC had no discretion under regulation 29(2).

(However, in considering whether HMRC would have acted reasonably in refusing to allow input VAT recovery had the invoices not been compliant with regulation 14, the FTT concluded that, in view of the large number of questions over the structure and timing of the transactions, HMRC would have been entitled to refuse to exercise its discretion.)

However, Eurocent was not entitled to reclaim input VAT on the Colridge invoice, as it did not meet the requirements of regulation 14(1). In particular, the invoice was addressed to both Eurocent and another party, the invoice did not state the customer’s address and did not provide an adequate description of the services supplied (simply stating “Introduction”). Furthermore, the Tribunal found that HMRC was not unreasonable in refusing to accept alternative evidence under regulation 29(2) for the Colridge invoice, as there was insufficient evidence to substantiate the supply or payment.

Comment

Whilst it is clear that HMRC can deny input VAT on the basis that the relevant supplies did not take place and can equally take into account the evidence of whether supplies took place in exercising its discretion under regulation 29(2) where there is no VAT invoice, it is not able to use its discretion under regulation 29(2) more broadly where a VAT invoice is, on its face, valid.