Une bonne idée: Follow French model to cut VAT paperwork for business, says Tax Association

Legislative changes due to commence from April 2015 will change the way in which businesses account for VAT when offering prompt payment discounts. In its response to an HMRC consultation1 on how affected businesses should adapt to these changes, the Association of Taxation Technicians (ATT) is proposing that UK firms be allowed to include narrative2 on their original sales invoices issued to customers, instructing them to reduce any input tax that has been claimed on the sales in question if they take advantage of the discount3. This would avoid a situation where a business might need to issue hundreds of credit notes to deal with the new rules.  

Currently, a business charges VAT on the discounted amount of a sale if a prompt payment discount is offered, irrespective of whether the customer takes advantage of the discount. However, from April next year, VAT must be charged on the gross value of a sale, and then a credit note will be issued (plus VAT) if the customer claims the discount to reduce the amount they pay for goods or services.  After the change businesses must account for VAT on the consideration they actually receive.

ATT President, Natalie Miller, commented:

“The ATT proposal is that UK businesses should be allowed to include narrative on their original sales invoices issued to customers, instructing them to reduce any input tax that has been claimed on the sales in question if they take advantage of the discount. This arrangement has been used in France for many years, and avoids the need to issue credit notes.

“The new regulations are fair on the basis that the VAT payable to HMRC is based on the actual payment made by the customer but we are concerned about the extra administrative burden this will place on many businesses as a result of the need to issue credit notes for sales where the customer has taken the discount. Our proposal is a common sense suggestion that will send a clear message to the customer about the need to adjust their input tax if he or she takes the discount without extra paperwork being necessary.”

Notes for editors

1.       The consultation document, VAT: Prompt Payment Discounts, can be read in full here.

 

2.       ‘Narrative’, meaning the details of why the refund has been made.

 

3.       The submission of the Association of Taxation Technicians can be found here.

 

4.       Association of Taxation Technicians

The Association is a charity and the leading professional body for those providing UK tax compliance services. Our primary charitable objective is to promote education and the study of tax administration and practice. One of our key aims is to provide an appropriate qualification for individuals who undertake tax compliance work. Drawing on our members' practical experience and knowledge, we contribute to consultations on the development of the UK tax system and seek to ensure that, for the general public, it is workable and as fair as possible. Our members are qualified by examination and practical experience. They commit to the highest standards of professional conduct and ensure that their tax knowledge is constantly kept up to date. Members may be found in private practice, commerce and industry, government and academia.

The Association has over 7,500 members and Fellows together with over 5,000 students. Members and Fellows use the practising title of 'Taxation Technician' or ‘Taxation Technician (Fellow)’ and the designatory letters 'ATT' and 'ATT (Fellow)' respectively.