VAT Penalties Blog

18.12.2014

Prompt payment discount “perk” to end next March

It seems to be more in the spirit of Scrooge rather than Christmas, that in this season when most of us give one another presents, HMRC has recently reminded us of its intention to remove one of the few gifts that it gives to taxpayers. The Taxman is not renowned for its spirit of generosity, but hitherto VAT registered businesses that provide prompt payment discounts to their customers have been allowed to treat the discounted amount as the consideration received, even if the discount was not taken.  Historically, prompt payment discounts (PPD) tended to be offered to businesses that could recover all of the VAT charged, rather than consumers, and there was therefore little tax loss to the revenue in allowing this treatment. In recent times, there have been an increasing number of business the make supplies directly to the public that have begun to offer PPD. This has seen HMRC lose out as the end consumer is unable to recover the VAT leaving HMRC with less tax than if VAT had been charged on the full price paid.

From 1st April 2015, HMRC will expect businesses to account for VAT at the appropriate rate based on the consideration actually received. HMRC has recently confirmed that it will not necessarily expect businesses to issue a revised invoice or credit note when payment is made within PPD terms. They will however, need to be able to evidence a reduction in consideration. The use of a single invoice setting out the terms of the PPD together with  documentary evidence to prove the price paid and date of payment (such as a bank statement)  will suffice.

Should you wish to discuss this, or indeed any other VAT issue, please contact either Gill Yates or David Pegg, who will be happy to assist you.

VAT-Penalties Team

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