20% VAT on an invoice received today - The Book-keepers Forum (UK)

G-Girl · Newbie

20% VAT on an invoice received today

AICB · Senior Member

So far as I know, it's all down to the actual tax point of the supply and it sounds as if these guys are jumping the gun somewhat. We are still in the 17.5% period so they can't charge a VAT rate that hasn't yet been enacted. The same would apply to claiming VAT back.

Any other opinions?

Susie Sue · Senior Member

I agree. If the invoice is dated before 04/01/11 then vat is 17.5%. If it is dated 04/01/11 onwards then 20% is ok but then the invoice wouldn't be due for payment until 30 days after that! They can't have it all!

luther parker · Veteran Member

Hi there,

You should be able to stretch it out to just over the 30 days, or sometimes you can make the payment first then back date the invoice to the beginning of the year. you could set up a new T code then do it as a prepaid, because they have sent you an invoice for jan to dec 2011, they have calculated 20% vat which is correct, but you do have the right to make the payment at the beginning of jan 2011 as this starts then and not before.they can not really charge you 20% VAT before Jan 2011.

Luther.

semsley · Guru

It all depends on what the date of the tax point is on the invoice. Some invoices have separate invoice and tax point dates which are different. If the tax point date is 4th January 2011 or later then 20% if the tax point date is prior to 4th January 2011 then 17.5% .

Wella · Expert

Thought I'd research this one and think I just totally adled my mind, trying to fathom out the time of supply rules on HMRC site.

There are two tax points. The first, is the basice tax point, when goods are supplied, services received etc. the second is the actual tax point, which accurs when an invoice is raised or a payment is made, whichever comes first.

From what I understand, the actual tax point is created at the time of payment, if it is in respect of a supply at a later date, regardless of the basic tax point. Examples are deposits and pre payments (subscriptions?) that are expected to result in a supply taking place.

There are several cases cited that involve prepayments, deposits and overpayments, that do not create a tax point but these seem to be special cases.

If somebody wants check out para 14.2.1 and 14.2.2 of the Tax Guide

Bill

-- Edited by Wella on Wednesday 24th of November 2010 06:00:39 PM

luther parker · Veteran Member

The Tax point should start the moment the invoice has been raised, you are simply setting up a prepayment which therefore any deposit you pay or they receive before Jan 4th 2011 then VAT is at 17.5% - if you or anyone settle the outstanding balance after Jan 4th 2011 then Vat is calculated at 20%.

If they expect you to pay in full the invoice before Jan 4th 2011 then they would have to charge you by law (HMRC) 17.5%.

As I said earlier on, you could either enter the invoice from Jan 4th 2011 or they change the invoice Vat amount.

Luther.

-- Edited by luther parker on Wednesday 24th of November 2010 08:15:36 PM

ADAS · Guru

Wella wrote:

From what I understand, the actual tax point is created at the time of payment, if it is in respect of a supply at a later date, regardless of the basic tax point.

This is how I've allways understood it to be e.g if you make stage payments on building work, vat is due on each individual payment otherwise the builder would just raise a vat invoice once he finished.

Quentin Pain · Senior Member

Paying deposits, part payments, in fact paying in general has nothing to do with the VAT charged. Even if either party is on the Cash Accounting scheme it makes no difference. As semsley and others point out, it is determined at the time of supply.

If they create an invoice today (pre 4th Jan 2011) then it will be 17.5%. If they raise it on the 4th or later (until the next change that is!) then it is 20%. So check the Tax Point (or Tax Date or Invoice Date). If it is dated before and it is actually an invoice (and not some kind of pre-sales statement to get you to pay early) then send it back and tell them the VAT is wrong.

luther parker · Veteran Member

I think part payment or deposits do have something to do with VAT, sometimes when you put down a part payment or a deposit then its part of that invoice that you will have to pay and as I said earlier I think the best bet is to tell the company that the VAT is wrong and send it back as Quentin rightly say's as well.

As G-girl is paying for a subscription that starts from Jan to Dec 2011, then it's not really a supply of goods, how I understand is that they want the money now.

Luther.

-- Edited by luther parker on Thursday 25th of November 2010 10:01:03 AM

ADAS · Guru

Quentin Pain wrote:

Paying deposits, part payments, in fact paying in general has nothing to do with the VAT charged.

I'm not sure that's entirely correct, but maybe I'm interpreting your point differently.
A client lost an appeal recently, hence the builder example I used. He wasn't on the cash accounting scheme but it was made clear that receipt of monies on account triggers a vat liability.

-- Edited by ADAS on Thursday 25th of November 2010 11:03:09 AM

ADAS · Guru

Just looked for specific advice,

Section 2.6 deals with pre-payments

http://www.hmrc.gov.uk/vat/forms-rates/rates/rate-rise-guidance.pdf

hth

-- Edited by ADAS on Thursday 25th of November 2010 11:14:02 AM

Quentin Pain · Senior Member

Hi Luther and Tony, I was basing my opinion that without a VAT invoice there is no VAT trail, therefore no VAT (probably a bit naive in hindsight).

I once worked with a client who issued pro-forma invoices that included the VAT, but HMRC agreed that the VAT would only be liable IF the recipient paid it (NOTE: this had nothing to do with VAT Cash Accounting, my client was on the Standard scheme).

The client contacted schools and offered to send them some goods on 'spec'. If they returned them within 30 days then there was nothing to pay. If not, the pro-forma became a proper invoice. He now lives in a mansion somewhere in Nottinghamshire!

Quentin Pain · Senior Member

Yes, you're completely right. The paper trail is irrelevant for deposits. The assumption is that if it is a deposit, then something is being sold and VAT is liable.

Section 3 is an eye opener and answers G-Girl's question. From section 3.3:
"However, under the special rules you may account for VAT at 20 per cent, not 17.5 per cent, on the payment or amount invoiced before 4 January 2011. You may find it more convenient to do this and to issue a VAT invoice for the 20 per cent rate in cases where your customer can recover all the VAT you charge them."

luther parker · Veteran Member

Hi Quentin,

Just refering to your client who issued a Pro-forma invoice including VAT, which seems strange as he shouldn't really do that. Once the customer pays the proforma then you send out a Tax invoice. or have I misunderstood your thread.

Luther.

-- Edited by luther parker on Friday 26th of November 2010 07:38:32 PM

luther parker · Veteran Member

....I mean, I know he doesn't show the VAT, as I know you show the total, then once payment has been made you then send out a tax invoice so they can claim the VAT, however there are some people who when sends out the tax invoice the customer still has to pay the VAT as they have only paid for the goods..which way do you suggest is the most appropriate way?

Luther.

Quentin Pain · Senior Member

Hi Luther, what he did was send out a VAT receipt if the school paid up. So the school paid on the pro-forma, then got the official document afterwards. What's interesting is that he got HMRC to agree that although a supply of goods was made, if the school rejected it, then he cancelled it, without any further action (no credit note, because there was no invoice).

This flies in the face of the concept that you don't need an invoice to prove a supply of goods! What is truly great is that it shows that the concept of British case law works when the law is sometimes an ass :)

ps. this is why we all find UK tax laws a bit of a minefield!