In theory, tax invoices, which are mostly produced by computer nowadays, should all comply with the law and should be easily recognisable. In practice, the infinite variety of layout on invoices complicates matters.
If your business receives a substantial volume of invoices, you are bound to be at risk for amounts big enough to lead to possible penalties.The sheer volume of transactions means there is a risk of documents slipping through, which are not tax invoices.
To reduce the risk to a minimum, both managers approving invoices and clerks processing them through the accounting system, must understand the importance of a tax invoice and the details which it must contain.
That requires training, which is not easy to carry out systematically, especially if there is a turnover of staff. Yet, untrained staff will break the law in your name!
So do I have to worry about my input invoices? Yes, you should! If your staff are not trained in what is required on a VAT invoice and you do not have a good enough system for checking for the key information, you are at risk; it is inevitable that VAT will be recovered on some documents which do not qualify.
When did you last check your input invoice files for: supplier’s statements which sometimes show VAT, delivery notes—which are sometimes carbon copies of the invoice and could easily, therefore show the VAT number if not the actual sum of VAT, requests for payment that often contain either the VAT number or the amount of VAT and pro forma invoices which may look much the same as an ordinary invoice.
RRA will certainly disallow input tax claimed on the basis of such documents even if they take a more relaxed view on those which fail to state, for example, the type of sale; i.e. whether it is a sale, a lease, a hire-purchase or whatever.
This does not mean that you have to check every input invoice for every detail — though, if you wanted to delay payment, a blitz on them might well produce a substantial number with minor defects.
However, staff do need to confirm that the document is a tax invoice; and the VAT is being recovered in the correct period. You cannot recover on a VAT return for the period ended 30 April the VAT on an invoice dated May 1!
Do not invent VAT! If a supplier sends you an invoice on which the VAT is incorrectly calculated, do not alter it! If you do, you cannot then prove to RRA that the supplier has also corrected it.
Strictly speaking, a document, which does not show the right amount of VAT, is not a tax invoice and RRA could therefore disallow the lot.
So if the sum matters, return it to the supplier for correction or get a credit/debt note from the supplier. If the amount of the error is trivial, you may decide to ignore it — though requiring the supplier to correct it is an excuse for delaying payment.
This article will continue next week and we shall see what information is required on a VAT invoice? Can someone use photocopies of invoices to claim VAT? Implication of invoicing in foreign currency, what is simplified tax invoice?
The author is Tax Manager, PwC Rwanda.