In Scandico Ltd v HMRC [2017] UKUT 0467, the Upper Tribunal (UT) concluded that HMRC were within their rights to refuse a VAT reclaim due to insufficient evidence on the purchase of iPhones.

  • Scandico export iPhones that were not available in certain countries and Apple do not generally sell to phone traders from its retail stores.
  • Scandico therefore employed 80 individuals which they called ‘runners’
  • Employees would purchase iPhones under their own names, false names or without providing names. Cash or gift cards were given to the runners to pay for the phones, though sometimes the individuals used debit or credit cards.
  • VAT was reclaimed by the company on the iPhones.
  • HMRC enquired into the reclaims and blocked the input VAT recovery as only simplified VAT invoices were provided and the cost exceeded £250.

Scandico appealed against the block.

The First Tier Tribunal (FTT) decided that the employees clearly purchased iPhones on behalf of the company but that this was irrelevant.

To make a VAT reclaim proper documentary evidence must be held. This typically means a VAT invoice.

Where a VAT invoice is not available, HMRC can, at its discretion accept other evidence.

Here, HMRC invited the taxpayer to provide further secondary evidence and was not satisfied with what was provided. There was no audit trail which confirmed how phones had been purchased and delivered to the company.

As this is an area of law which is at HMRCs discretion the FTT need only consider whether the conclusion was reasonable. Something would need to be seriously deficient for it to find otherwise.

The FTT concluded that HMRC was reasonable in its conclusion and that there were gaps and uncertainties which meant it was within its rights to block the claim.

The UT agreed with this conclusion.


What constitutes a valid VAT invoice?

External link: Scandico Ltd v HMRC [2017] UKUT 0467


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