Brian Gooch - 14 August 2014
EXAMPLE
|
£ |
The invoice would show £ |
|
| Value of goods sold |
1,000.00 |
|
| PPD of say 10% if paid within 30 days |
100.00 |
|
| Vat calculated on the net |
900.00 |
|
| VAT due @ 20% |
180.00 |
180.00 |
| Gross invoice amount |
1180.00 |
The VAT man considers that some businesses are exploiting the current PPD rules and tax losses are currently being suffered by the government in some circumstances. As a result, the rules are about to change for everyone.
Historically, these discounts were offered B2B where the customer was able to reclaim input tax. However, the VAT man claims to have noted a trend towards PPDs being offered B2C or to businesses not even registered for VAT. In some cases, being used as aggressive tax planning, for example a supplier trading with a business that cannot recover its input VAT, might offer a discount to the customer with the understanding that early payment would not be made. In this example, the customer would pay very little VAT without affecting the supplier’s income.
Changes came into force 1 May 2014, initially only affecting the supply of telecommunication and broadcasting services, but will affect everyone from 1 April 2015.
When the changes become effective, the biggest headache will be in the administration. At the moment, a business issues an invoice with the VAT calculated on the discounted value and does not need to make adjustment to the VAT if the customer does not settle within the prompt payment period.
However, from 1 April 2015, suppliers will need to make a decision whether to issue an invoice showing the discounted VAT or the full amount. If the invoice shows the discounted value and the customer pays late, then an additional invoice will need to be issued to correct the VAT. If the customer pays promptly and the invoice showed the full value, a credit note will be required.
Since publishing this article, further guidance has been confirmed. See link for details
Contact Brian Gooch if you require any further details on how the changes might affect you.
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I work extensively in the corporate owner managed business sector, covering transactional taxes, property taxes including Stamp Duty Land Tax and VAT, and all areas of business tax planning. I have considerable experience in maximising tax efficiency by reviewing business structures and planning corporate reorganisations.
View my articlesTags: VAT, Business Taxes
Written especially for entrepreneurs and owner-managed businesses, this guide is full of planning ideas and tax risks to avoid.
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