Michael Griffiths (TC06697) was the victim of a PAYE foul-up by HMRC which resulted in his being served with a notice to file a self assessment tax return for 2013/14.
HMRC’s PAYE computer issued Griffiths with a tax calculation on 31 May 2014. Unfortunately, it only took into account one of his two employments and generated an overpayment of £579.80. A payable order was issued on 1 June, which he received on 3 June and duly banked.
Meanwhile, on 2 June, the computer issued a revised calculation which took account of all his income. Griffiths had, in fact, underpaid tax by 80p for the tax year (which would have been simple either to code out or to discharge). However, because of the payable order issue one day earlier the consequence was an “underpayment” of £581.60
In an important judement delivered at the end of June the Court of Appeal (Civil Division) held that Input VAT could not be recovered in the absence of an invoice showing VAT had been charged.
The court ruled that ‘in the absence of a VAT invoice showing that VAT was charged to Zipvit by Royal Mail’, Zipvit could not recover any input tax (even if that input tax was ‘due and paid’). Although HMRC do have discretion to accept evidence which does not fully comply with the statutory requirements for a VAT invoice, the court found that there was no support in the legislation or case law ‘for the proposition that a right to deduct may be recognised and given effect without production of a VAT invoice showing that the tax in question has been paid by the supplier’.
HM Revenue and Customs updated their guidance on Making Tax Digital (MTD) last week. It’s not the easiest of reads but it does set the tone to what to expect when this burdensome legislation comes into force in April next year. Most important takeaways for us are the digital record keeping requirements and the digital links definition that flows from that.
The “functional compatible software” in which the VAT information is recorded can be a number of software programs, products, applications or spreadsheets which are digitally linked together. A digital link is an electronic or digital transfer or exchange of data between software programs, products or applications.
The VAT notice warns that the use of “cut and paste” does not constitute a digital link. However, using digital links between software to transfer data needed for the VAT return won’t be compulsory until VAT periods starting on or after 1 April 2020. This constitutes the “soft landing” which HMRC have said will be applied in the 1st year.
HM Revenue and customs latest guidance can be found HERE