HMRC has issued One-to-Many (“OTM”) letters to facilities management businesses, urging them to review input tax recovery on energy bills. Although the campaign is targeted, all businesses in this sector should ensure they can confidently support their VAT position.
Where VAT is incurred on energy bills, only the business that both receives and uses the supply can recover input tax. If a facilities management company is not contractually recognised as the recipient of the supply, it cannot recover the VAT—even if it pays the invoice.
It is clear that HMRC are expecting a response from businesses receiving the letter and that action should take place within 60 days of receipt. Their recommendations include:
- Reviewing all contracts to confirm the business is named as the recipient of the supply.
- Reviewing VAT returns to ensure input tax has only been recovered where the business is the contractual recipient.
- If input VAT has been incorrectly recovered, businesses will need to correct the errors in line with HMRC’s updated guidance at VAT Notice 700/45. (You can refer to our blog for background on the recent changes at HMRC Updates VAT Notice 700/45: VAT Errors | Xeinadin Blog)
- Contacting HMRC to disclose findings, whether or not errors are identified.
It is important to note that HMRC are expecting a response from the affected businesses, irrespective of whether VAT errors are identified or not.
Our VAT team is here for you if you’d like to discuss the potential implications of this letter on your business, assist you in formulating your response to HMRC and notifying of any errors. Your Xeinadin client manager can refer you to our specialist VAT team for support or you can email us on [email protected] to discuss this further.
Being proactive now could save you from significant cost and threat of penalties later.
