There is great concern being expressed across the industry of a major change to the treatment of VAT and Prompt Payment Discounts.
Currently businesses can issue invoices that give details of the amount of the Prompt Payment Discount and its terms and show the VAT due calculated on the discounted price. If the discount is not taken up HMRC has not required businesses to alter the amount of VAT invoiced and accounted for.
From 1 April 2015, businesses will have to charge VAT on the full invoice price (goods amount), as opposed to the discounted price where settlement applies. Subsequent adjustments will then be required to adjust VAT where a customer takes up a prompt payment discount that has been offered e.g. credit the previous invoice and re-invoice for the corrected amount or issue a credit note.
There was a short consultation period between 17 June 2014 and 9 September 2014 where feedback could have been given to HMRC – however, most of our industry has missed it and indeed we believe it has slipped by most of the major trade bodies and large businesses in the UK.
Following a conversation with a senior representative of the HMRC – they have indicated that the time for any feedback had now elapsed, however, they would hopefully be giving their first response within the next month, which would then be followed later by any guidelines.
Key industry concerns are the sheer amount of extra administration work required from all parties when dealing with businesses that offer Prompt Payment Discounts, which are an integral part of the financial terms offered in our industry.
Chris Hayward, managing director of NMBS, said: “The time period for responding to the consultation period may well have passed – however, in view of the huge administrative burden that could be placed on UK businesses for what will have no exchequer impact, then following the initial response from HMRC and any published guidelines, key players in the industry, both nationals and independents may have to jointly consider the best ways of making our major industry concerns heard by the government.”
Full details of the VAT Prompt Payment consultation can be found at: www.gov.uk/government/consultations/vat-prompt-payment-discounts