HMRC believes there is a high level of VAT fraud by firms that supply temporary workers or site labourers. Recently there have been a number of reports of HMRC blocking VAT recovery on the grounds that the invoice was invalid, which is often for the supply of staff or labour.
What must be included on a VAT invoice is set out in reg 14(1) of the 1995 VAT regs. Most of the requirements are straight forward, but there is room for HMRC inspectors to quibble about the details required in subsections (g) and (h):
(g) a description sufficient to identify the goods or services supplied,
(h) for each description, the quantity of the goods or the extent of the services, and the rate of VAT and the amount payable, excluding VAT, expressed in sterling,
There needs to be enough detail in the description for an independent observer (eg HMRC inspector) to identify and quantify the service provided, so the invoice needs to say a bit more than just ‘labour supplied’ or ‘staff supplied’.
An invoice for labour should as a minimum give the number of workers, number of hours (or days) worked, the dates of the work and the site address. The HMRC guidance says it may not be reasonable for invoices to include details of the nature of the work undertaken, but it does expect the invoices to cross reference to other documents that may show this detail, such as timesheets that show the workers’ names, or supporting schedules detailing what was done.
In practice HMRC officers may appear to be ignorant of this advice, so its worth pointing it out where an invoice is queried.
However, to avoid HMRC raising questions about invoices we advise our clients who supply workers, to populate their invoices with a little more detail and cross reference where possible to contracts or timesheets.
Written by the Tax Advice Network