Invalid invoices prevent VAT recovery

In Tower Bridge GP Limited v HMRC [2022] EWCA Civ 998, the Court of Appeal (CoA) found that a company could not recover input VAT on transactions connected to fraud. The company did not hold valid VAT invoices and HMRC were right not to exercise discretion to allow recovery of VAT.

• Tower Bridge GP Limited (TBGL), as the representative member of a VAT group, sought to recover input tax totalling £5.6m on purchases of carbon credits from a third party by another group member.
• HMRC denied TBGL’s VAT recovery on the basis that the supporting Purchase invoices were invalid as they did not show the supplier’s VAT number or the customer name.
• HMRC have Discretion to allow alternative forms of evidence for recovering input VAT, but refused to exercise this discretion in favour of TBGL as:
  • The supplier was not Registered for VAT.
  • The transactions were connected to fraud.
  • Reasonable due diligence in relation to the transactions had not been conducted.

Following unsuccessful appeals to the First Tier Tribunal (FTT) and Upper Tribunal (UT), TBGL Appealed to the Court of Appeal (CoA) which found that:

• TBGL did not have the ability to exercise its right of deduction.
• HMRC’s refusal to exercise its discretion was valid.
  • The primary purpose of HMRC’s discretion is to allow defective invoices to be corrected by the subsequent supply of information which ought to have been in the invoices in the first place but was not.
  • While the customer name could be supplied, the supplier’s VAT registration number could not, because it did not exist. 
  • If an exception were made, there would be a loss to the public purse in relation to the input recovered by TBGL, with no corresponding gain from the output tax that the supplier should have paid, but fraudulently did not.
    • These were legitimate matters for HMRC to take into account.

TBGL’s appeal was dismissed.

Useful guides on this topic

Input VAT: What constitutes a valid claim (& VAT invoice)?
What is Input VAT? Who can claim it? What is needed for a valid claim? What needs to be included on a VAT invoice and can you make a claim without one? 

Groups (VAT)
What are the conditions for forming a VAT group? What rules apply once a VAT group is in place?

External link

Tower Bridge GP Limited v HMRC [2022] EWCA Civ 998