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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4956
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As a company needing to provide a customer with a bank guarantee

Customer Question

as a company needing to provide a customer with a bank guarantee aganst a large prepayment, the customer is asking to add VAT on top of the guaranteed amount, fine for invoicing but if a claim is made against the guarantee how to we get our VAT back ?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.
The customer is presumably issuing your company with a VAT Invoice, not a pro-forma one. The VAT can thus be reclaimed on your quarterly return as normal so it has been recovered outside the guarantee process.
I do hope that my reply has been of help to you. I trust I have not got your question round my neck! I have assumed that your company is ordering a substantial item or service and the vendor wishes to protect themselves.
Customer: replied 2 years ago.

Hi Keith,

No sorry, you misunderstood my question, or I wasnt clear.

We are selling the equipment so we issue the invoice for the prepayment + VAT (and at a later stage pay it to HMRC)

If however the kit doesnt work or is not accepted by the customer, he then claims from the bank guarantee and gets his money back + VAT from them.

Question is : how to we claim the VAT back we paid HMRC without an input invoice ?



Expert:  bigduckontax replied 2 years ago.

Oh, that is easy Nick. What you have done is put the VAT received, and presumably passed to HMRC in due course, in your books of account. If it all goes pear shaped you merely reduce the output tax on later transactions and thus recover the VAT which actually isn't due to HMRC on a sale which effectively did not occur.

In fact that is how one adjusts VAT errors in any case by changing later returns to reflect reality. Make sure that you have an audit trail, which could be provided for by issuing a credit note to reverse the invoice, in the event of some future inquiry. It is, in fact, surprisingly simple.

So sorry I got it the wrong way around first time!