HMRC has updated the accounting rules for adjustments to VAT when there are increases or reductions in the price of goods or services, set to come into effect in September.
Under the new rules, the time an increase in price occurs is when the change is agreed by both the supplier and the customer – a debit note must be issued no later than 14 days after the price increase – the supplier must account for the increase in VAT in the VAT period in which the change occurs.
A decrease in price occurs when a supplier makes a refund to a customer, or other person entitled to receive the payment – a supplier has 14 days to issue a credit note from the time the decrease occurs – a supplier must account for the decrease in the VAT period in which it takes place – a VAT-registered customer must reduce the amount of VAT it has claimed by the same amount, this does not prevent a supplier issuing credit notes in advance of refunds being made, but ensures that it is issued no later than 14 days after the payment.
A payment in relation to a decrease in price is defined as any payment in money. It also includes an offset made against an existing liability. For example, a supplier may offset a decrease in price against an outstanding debt. That may be a debt arising from an earlier transaction, or money owed against a sale which is the subject of a price reduction. Examples include a hire purchase contract which is terminated before the customer has paid the full amount due.
A debit note must now contain an identifying number; the date of issue; the name, address and registration number of the supplier; the name and address of the customer; the identifying number and date of issue of the VAT invoice or invoices relating to the supply for which there is an increase in price; a description sufficient to identify the goods or services supplied; the amount of the increase in price excluding VAT; and the rate and the amount (expressed in sterling) of the VAT chargeable in respect of the increase in price.
A credit note must contain an identifying number; the date of issue; the name, address and registration number of the supplier; the name and address of the customer; the identifying number and date of issue of the VAT invoice or invoices relating to the supply for which there is a decrease in price; a description sufficient to identify the goods or services supplied; the amount of the decrease in price excluding VAT; and the rate and the amount (expressed in sterling) of the VAT credited in respect of the decrease in price.
Source Accountancy daily
