Importance of VAT invoice from customer's perspective

[neilsolaris]

Hi,

I do the bookkeeping for two companies, one of which is VAT registered, and the other not. My question is regarding just the non-VAT registered company.

For the VAT registered suppliers, I make the payment and immediately email them asking for them to provide a VAT invoice. They usually provide one straight away, but some require several reminders! In this scenario, how important is it that we receive a VAT invoice? It's only the supplier who'll get in trouble if there's an investigation, isn't it, not us? In which case, as long as I've requested an invoice, can I just let it go after that? There's proof of the expense on the bank statement after all.

Thanks for your advice.

 

[NicoJ]

Hi,

I do the bookkeeping for two companies, one of which is VAT registered, and the other not. My question is regarding just the non-VAT registered company.

For the VAT registered suppliers, I make the payment and immediately email them asking for them to provide a VAT invoice. They usually provide one straight away, but some require several reminders! In this scenario, how important is it that we receive a VAT invoice? It's only the supplier who'll get in trouble if there's an investigation, isn't it, not us? In which case, as long as I've requested an invoice, can I just let it go after that? There's proof of the expense on the bank statement after all.

Thanks for your advice.

Its always good practice to get an invoice for reasons other than VAT compliance. HMRC should take alternative evidence in an enquiry but why take the risk.

Your situation is the wrong way around. You should have the invoice before you make the payment (how else are you checking everything is correct).

 

[neilsolaris]

Thanks, so in that case I'll keep reminding them until they provide the invoice.

The reason we pay them first, is because it's an orchestra, and we know exactly how the fee is constructed. If we request a VAT invoice before paying them, it's going to slow everything down and create more work for me. I like to pay everyone at the same time, VAT and non VAT musicians alike.

 

[Newchodge]

You can just request an invocie, without specifying a VAT one.

 

[TheSkyisGray]

Another reason that you need an invoice is to prove that they are self employed and not employed (assuming this is the case).

 

[NicoJ]

Thanks, so in that case I'll keep reminding them until they provide the invoice.

The reason we pay them first, is because it's an orchestra, and we know exactly how the fee is constructed. If we request a VAT invoice before paying them, it's going to slow everything down and create more work for me. I like to pay everyone at the same time, VAT and non VAT musicians alike.

I understand your thinking, its not a regular business and it works for you. But the process is still the reason for your issue. If you only paid on receipt of invoices, or even requested paperwork on booking then you wouldn't have an issue.

 

[lesvatadvice]

The greater risk lies with the recipient; HMRC may disallow input tax if the invoice is invalid - see this guidance: www.gov.uk/guidance/vat-guide-notice-700#section16
Where a supplier fails to provide invoices on request, whilst that is a breach of VAT Regulations, penalties are rare and low value.

 

[DontAsk]

My question is regarding just the non-VAT registered company.

Why do you need a VAT invoice for a non registered company?

What are you going to do with it?

 

[neilsolaris]

Why do you need a VAT invoice for a non registered company?

What are you going to do with it?

Well, that was my thinking, we can't reclaim input tax. So I'm thinking, if we're not requiring invoices from the non-registered VAT musicians, I imagine it's no difference for the VAT-registered musicians. I always run the VAT musicians through the online VAT checker to make sure they're all still VAT registered before paying them.

But I take note of the other points that were made.

 

[Newchodge]

So I'm thinking, if we're not requiring invoices from the non-registered VAT musicians, I imagine it's no difference for the VAT-registered musicians.

Are the musicians your suppliers? It's probably easier just to refer to them as suppliers. You need an invoice from every supplier. It needs to be a VAT invoice if you intend to claim back VAT paid, which you cannot do if you, the client, is not VAT registered. You need the invoice to demonstrate the expenses incurred in calculating the company profit.

 

[neilsolaris]

Are the musicians your suppliers? It's probably easier just to refer to them as suppliers. You need an invoice from every supplier. It needs to be a VAT invoice if you intend to claim back VAT paid, which you cannot do if you, the client, is not VAT registered. You need the invoice to demonstrate the expenses incurred in calculating the company profit.

Yes, the musicians are our suppliers. This orchestra, and every other one I have ever worked for, do not require invoices. Are they all doing things incorrectly?

This particular orchestra is not VAT registered, so we can't claim back VAT paid can we? But the whole cost (incl VAT) is eligible to claim as a business expenses, isn't it?

 

[Newchodge]

The whole lot is claimable as a business expense. How do you prove the expense incurred if HMRC come calling?

 

[Paul Kelly ICHYB]

Make a invoice a condirion of payment - no invoice = no payment!

 

[Daybooks]

Hi,

I do the bookkeeping for two companies, one of which is VAT registered, and the other not. My question is regarding just the non-VAT registered company.

For the VAT registered suppliers, I make the payment and immediately email them asking for them to provide a VAT invoice. They usually provide one straight away, but some require several reminders! In this scenario, how important is it that we receive a VAT invoice? It's only the supplier who'll get in trouble if there's an investigation, isn't it, not us? In which case, as long as I've requested an invoice, can I just let it go after that? There's proof of the expense on the bank statement after all.

Thanks for your advice.

You need a VAT invoice in order to support your claim to recover the VAT suffered from HMRC. Therefore I would recommend always get an invoice (VAT or otherwise) before making payment and also always record it in your ledgers before making the payment.

There is no incentive for a supplier to provide an invoice after being paid; but you’ll find it can be persuasive before payment.

Any investigation into the VAT returns of the companies you are doing the bookkeeping for will look at the proof you have for recovering any input (purchases) tax; categorically your problem not the suppliers. Therefore as stated before make it their problem by getting it before making payment.

 

[neilsolaris]

The whole lot is claimable as a business expense. How do you prove the expense incurred if HMRC come calling?

Well, I know the director would not be inclined to make all the musicians provide an invoice after every job. I take the point regarding proving to HMRC if they come chasing us, and we need to prove the VAT part of the expense, as well as all the expenses generally. Perhaps I should discuss this with the company accounts at the next meeting.

But none of the big orchestras in the UK demand invoices from any freelance musicians. The only time I'm required to provide an invoice is the odd time when I do a recording session (I'm predominantly a musician myself by the way).

 

[Newchodge]

Well, I know the director would not be inclined to make all the musicians provide an invoice after every job. I take the point regarding proving to HMRC if they come chasing us, and we need to prove the VAT part of the expense, as well as all the expenses generally. Perhaps I should discuss this with the company accounts at the next meeting.

But none of the big orchestras in the UK demand invoices from any freelance musicians. The only time I'm required to provide an invoice is the odd time when I do a recording session (I'm predominantly a musician myself by the way).

If the cmpany is not VAT regstered, VAT is a complete red herring.

Suppose, as is emminently possible, HMRC decides to do an inspection of the music industry to ensure the musicians are declaring their income and the musicians' clients are paying them appropriately and not as disguised employees. A musician's bank account may show numerous recipts from your company. How can you demonstrate what they were for?

 

[neilsolaris]

If the cmpany is not VAT regstered, VAT is a complete red herring.

Suppose, as is emminently possible, HMRC decides to do an inspection of the music industry to ensure the musicians are declaring their income and the musicians' clients are paying them appropriately and not as disguised employees. A musician's bank account may show numerous recipts from your company. How can you demonstrate what they were for?

Yes, we can't claim back VAT as input tax, as we aren't VAT registered. That's why I stated that at the beginning.

I provide a remittance advice for every musician for every engagement. And I have a separate payment file for each engagement, with all the details, including date of payment. It would be incredibly easy to demonstrate which payments were for what.

 

[Newchodge]

Yes, we can't claim back VAT as input tax, as we aren't VAT registered. That's why I stated that at the beginning.

I provide a remittance advice for every musician for every engagement. And I have a separate payment file for each engagement, with all the details, including date of payment. It would be incredibly easy to demonstrate which payments were for what.

It would also be incredibly easy to add several musicians who were not engaged so as to boost the costs and cheat the taxman, while paying a connection of yours. I am not suggesting that you would.

 

[neilsolaris]

It would also be incredibly easy to add several musicians who were not engaged so as to boost the costs and cheat the taxman, while paying a connection of yours. I am not suggesting that you would.

Would that be for me to prove I'm not cheating, or for them to prove if I was?! I'm not of course!

 

[Newchodge]

Would that be for me to prove I'm not cheating, or for them to prove if I was?! I'm not of course!

If you cannot provide invoices it would be for you to prove.

 

[neilsolaris]

If you cannot provide invoices it would be for you to prove.

Well, that would be easy enough.