Saturday, 31 May 2014

HMRC Prompt Payment Discount VAT

Well, no sensible replies, even though they confirm the rules apply already for telcos...

So my latest email to them :-

OK, to make this simple I have a simple tangible question for HMRC on this new policy for prompt payment discounts.

I have, today, issued an invoice to a non VAT registered individual customer for telephony services.

The invoice does not mention VAT as a non VAT registered customer. It is for £14, but with a £2 prompt payment discount making it £12 if paid within a time frame specified on the invoice.

Previously the VAT would be on the discounted amount of £12 total, so £2 VAT. Simple.

With the new policy it depends on the "consideration actually received".

Please tell me what figure for VAT on this invoice you require me to include in the VAT payable on sales for my next VAT return?

I do not know if the prompt payment discount will be taken or not, and will not know by the time I have to do the VAT return (unless it is paid before then, obviously).

The rules you now have state that the VAT depends on the actual payment made. But I do not know what that will be. Will it be the discounted amount because paid promptly, or the un-discounted amount if not?

So - what do I put on my VAT return for the VAT element of this invoice? How much VAT should I pay HMRC in relation to this invoice?

Obviously it would be seriously negligent of HMRC to have introduced new VAT law and rules without knowing the answer to such questions before businesses have to implement them, and I am sure HMRC are not so irresponsible. I am sure you have an answer all ready for me and a VAT notice/leaflet and web page on the topic.

So, please tell me.

I look forward to your prompt, and formal, reply

15 comments:

  1. One answer would be to make sure the deadline for prompt payment is before the deadline for the return - then when you do the return there are three possibilities.
    - Paid within the prompt payment discount period (VAT known)
    - Paid outside the discount period but before the return (VAT known)
    - Not paid (due but at least VAT known).

    Only works if there is sufficient time before the return has to be done, of course.

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    1. Oh, indeed, lots of work arounds, including simply not doing prompt payment discounts, but this has come in with no answers and started 1st May and HMRC are just thinking about consulting on it now.

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  2. Maybe I am being naive about government bureaucracy but if they state, "consideration actually received", surely they are saying that you don't need to tell them anything until the consideration has actually been received?

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    1. Well, VAT returns and VAT due are normally based on VAT invoices/receipts and not delayed until payment. AFAIK it is not that easy to get on cash accounting for VAT. If this did mean delaying the VAT until paid, it would allow companies to become cash accounting just by offering a few pence prompt payment discount. I suspect they don't intend that :-)

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    2. Taken literally, of course, the "consideration actually received" is zero up until it's paid - which would actually give you the best of both worlds: you could reclaim the VAT on BT's invoices as soon as you receive them, but not hand over the VAT you charge me until I've paid you.

      Apparently there's a similar motivation behind invoices marked "this is not a VAT invoice" - being on Home::1, it would seem you're already effectively on the cash-flow scheme for my own payments, since the tax point for those is when you receive payment from me rather than when you invoice me.

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  3. VAT cash accounting is available to almost everyone turning over less than about 1.3 million, and I'd have thought many (most) people running businesses smaller than that threshold are using it (I always have!) - it's certainly not 'hard to get on'.

    It doesn't normally apply to your type of sales (or size of business), but it would seem in principle pretty simple that it could.

    http://www.hmrc.gov.uk/vat/start/schemes/cash.htm



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    1. Sorry, yes, smaller businesses can be on cash accounting but it would be very odd for a large business to be able to switch some or all of their invoices to it at a whim just by doing a prompt payment discount. For those not on cash accounting HMRC need and answer and for telcos not on cash account that is needed by last month.

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  4. The other fun is when selling something for lower than normal price - e.g. if company sells me a new macbook for £1. Previously HMRC would expect VAT on the value not the actual consideration received, as I understand it. This new rule is a massive change. I could sell a macbook for £1000 with a £999 prompt payment discount, and pay £1, and VAT apply "on the consideration received" which is only £1. I'd need to declare a benefit in kind and pay tax, but would save a fortune on the VAT! I really can't help thinking that they have not through this out.

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  5. You're braver than most if you're happy to risk upsetting the VAT folks....

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    1. Well, we are not doing anything wrong, and we are asking questions to make sure we continue not to do anything wrong - that really should not upset them!

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    2. The "this is not a VAT invoice" does not change that we have to pay the VAT as the tax point is the date of that invoice anyway and the goods supplier, so VAT is due even when not yet paid.

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    3. Interesting - HMRC say that it is the issue of a *VAT invoice* which establishes that tax point, issuing anything else - including "this is not a VAT invoice, but you owe us £120 now" - does not. (I do VAT, but for a small enough company to be on cashflow VAT anyway, so the issue's never arisen for us.) After all, the whole point of "this is not a VAT invoice" is that the document does not count as an invoice for VAT purposes!

      Delaying the tax point was the only sane explanation I'd found for places issuing what would otherwise be a perfectly normal VAT receipt then sabotaging it with that addition. Otherwise, if they have to treat it as if they'd issued a VAT invoice anyway, why do it?

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    4. It is issue of VAT invoice, or supply of goods/services, whichever is the sooner, though you can delay to the VAT invoice point but only a small amount of time. I could try and dig all of this out on the HMRC site. I have often wondered why many shops don't issue VAT invoices. In our case it is to differentiate a "home" service and that is all.

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    5. Not for services supplied on a continuous basis - like Internet access - there, the tax point is the earlier of when the VAT invoice is issued and when payment is received - so, in cases like Home::1 where no VAT invoice is ever issued, it will be the latter. (Section 14.3 "Continuous supplies of goods and services" in HMRC Notice 700.)

      This explains why it took prodding to get O2 issuing proper VAT invoices on one of the company lines - they'll be covered by this, so it genuinely delays their payment of VAT by a few weeks. Actual shops handing over physical goods, I don't know

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    6. I stand corrected - interesting - that is not why A&A do it by the way.

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