The recent decision in Best Buys Supplies Ltd v HMRC illustrates the problems that can arise reclaiming input VAT where a business has failed to obtain valid VAT invoices from its suppliers.

The Best Buys case related to the purchase of alcohol wholesale. This is a trade sector with a high incidence of fraud on HMRC. The taxpayer’s supplier went “missing” without accounting to HMRC for £36million. HMRC had already deregistered the supplier for VAT as it had failed to submit VAT returns or evidence any genuine trading activities.

When the taxpayer sought recovery of £110,000 it had paid to its supplier as VAT, HMRC refused the claim. The refusal was because the relevant VAT invoices didn’t have a VAT number or they had been issued after the supplier was deregistered for VAT. There is no suggestion that the taxpayer in the case was itself fraudulent or that it had colluded with its “missing trader” supplier. Indeed the taxpayer had done some limited checks on its supplier. Instead, the taxpayer simply seems to have been commercially naïve operating in a high risk sector but failing to make sure its VAT paperwork was correct or to consider basic questions testing the legitimacy of its supplier’s business.

The Tribunal found that HMRC was right to refuse the taxpayer’s claim. The taxpayer had not done enough to show it should recover the input VAT it had incurred without proper valid VAT invoices. In effect the Tribunal approved HMRC’s stated practice about how it will use its discretion in these circumstances.

This case reminds us of some important basic principles about VAT invoices. Tenants ought to bear these points in mind when they pay VAT on rent and indeed they are relevant for any business paying VAT on the purchase of land or other goods or services.

  •  Taxpayers are only entitled to reclaim input VAT incurred relating to their taxable business if they hold a valid VAT invoice. Make sure your landlord gives you a VAT invoice for the rent you pay.
  •  Check the VAT invoice you get from your landlord is valid. Does it contain all the required information? Is it in the name of the entity you were expecting? Is the VAT number given one for a live VAT registered business? You can check details online at
  •  If your VAT invoice isn’t valid, you should in the first instance ask your landlord to reissue it properly.
  •  Even if your VAT invoice is invalid and you have been unable to get it reissued correctly, you may still be able to recover the input VAT at the discretion of HMRC. HMRC issued a statement of practice in March 2007 entitled VAT Strategy: Input Tax deduction without a valid VAT invoice which explains how it intends to apply its discretion. You may need to provide alternative documentary evidence that the supply took place, evidence of payment and/or be able to explain the background of your dealings with the landlord.
  • o Remember that with supplies of land, including supplies under a lease, the VAT treatment is particularly complicated. The landlord is usually only entitled to charge VAT if it has made an option to tax (sometimes called a VAT election). It’s a good idea to get a copy of this from the landlord to evidence that it is entitled to charge VAT on your rent.

Best Buys Supplies Ltd v HMRC (2010)