Lost purchase invoices: are estimates acceptable?

Copy invoices

The first challenge will be to contact the suppliers for VAT invoice copies. If any of them were issued in PDF, the business can hopefully retrieve them from the email system. It should focus on the suppliers with the largest amount of VAT on their invoices. For example, a building business would not need to prioritise subcontractor invoices for zero-rated jobs - invoices from merchants for building materials would be more important.

In the absence of valid VAT invoices, the regulations allow businesses to acquire a bundle of other documents to confirm that they have paid VAT to a UK supplier for a legitimate business expense and are therefore entitled to claim input tax.

Submit return on time

It is unlikely that the business will be able to acquire copies of all invoices before the submission deadline. The first option would be to not claim any input tax on these invoices and then claim them in the next period when they will hopefully be available. The business must ensure that it submits the return on time to avoid any potential default surcharge problem with HMRC.

The inclusion of the VAT invoices on the next return will not relate to the correction of any VAT error for the earlier period. This is because a business can only claim input tax when it holds the relevant evidence to support a claim, i.e. the latter period.

Estimating

There is another solution. The VAT regulations allow a business to estimate both the output tax and input tax figures on VAT returns if an unexpected event means that an exact calculation is impossible. However, this can only be done with HMRC’s approval and there are three stages:

1. HMRC must approve the “event” itself - the reason why an estimation is needed. A flood problem should be fine.
2. The calculation method must be approved. How will the business work out how much input tax it thinks it can claim?
3. HMRC must also be satisfied that the business will be able to include the exact figure on the following period’s return, i.e. the estimation is temporary.

The business can use any method to estimate a claim, but it must be based on a proper calculation, rather than a guess. For example, a claim based on average purchases in previous months from key suppliers might be an accurate method.

How to deal with HMRC

HMRC’s VAT manual says that the business must write to the VAT Enquiries Team to get approval of an estimated claim. However, we know that HMRC has a backlog of correspondence and is unlikely to reply to a request before the return is due. The best strategy is to therefore contact HMRC’s telephone helpline service and explain the situation. The number is 0300 200 3700, open Monday to Friday 8.00am to 6.00pm. If the officer says that the business will have to delay the input tax claim until the following period, it should refer them to Regulations 28 and 29(3) VAT Regulations 1995, which gives the right to estimate input tax with HMRC’s approval.