VAT Invoices – Are yours correct post the recent VAT rate reduction?

Thinking about an interesting topic for a blog at this pandemic time was not easy and especially involving VAT! However, in recent days it has been VAT changes for hospitality, holiday accommodation and attractions businesses that have brought some excitement for the public with the hope to begin to resume normal life again.

From 15 July 2020 to 12 January 2021, the 5% rate of VAT applies to supplies made in the hospitality, accommodation, and attractions sector.

A VAT registered business can recover VAT on its business expenses but it can only reclaim VAT on a valid VAT invoice. It is a legal document and must have certain information for VAT recovery. Therefore, business customers must check their invoices to make sure that all the required information is available and the correct VAT has been charged by the supplier.

The temporary VAT cut might make it harder for suppliers to charge VAT correctly as the new temporary VAT rate does not apply to everything in a catering business. For example, in a take-away business, reduced 5% only applies to hot food, hot takeaway and non-alcoholic beverages. If a business receives any invoice related to hospitality or accommodation (for example, it has used these supplies for business purposes or staff entertainment etc), the business must make sure that 5% or 20% VAT has been charged correctly which can be recovered under normal VAT recovery rules.

If incorrect VAT has been charged by the supplier on an invoice, the invoice will not be a valid VAT invoice and the business customer cannot use the invoice to reclaim VAT.

The only way to recover the correct amount of VAT, is to contact the supplier and ask them to re-issue the correct invoice. If too much was charged, for example between 15th July 2020 and 12th July 2021 a restaurant has charged 20% VAT on their supplies instead of 5%, you will need to request the restaurant to issue a credit note for the incorrect original invoice and issue a new VAT invoice with 5% VAT.

There might not be any loss to HMRC because of this incorrectly charged VAT. However, we have noticed a few times where HMRC has refused the VAT reclaim on incorrect invoices even though the same amount of VAT has been paid to HMRC.

We know things are not straight forward in VAT and these small changes with exceptions in the legislation can make them more complicated.

Our VAT team at Garbutt & Elliott is always here to help you with any queries you have. Please contact Naveen Sahney at nsahney@garbutt-elliott.co.uk or Alex Millar at amillar@garbutt-elliott.co.uk