CREDIT WHERE CREDIT’S DUE

This note explains HMRC’s new rules from 1 September 2019 for adjustments to VAT following increases or reductions in the price of goods or services.

Reason for the change

There is evidence that some businesses are trying to use the current Regulations to gain a tax advantage by making VAT adjustments for reductions in price without refunding their customers.

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 debit 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 an increase in price
• a description sufficient to identify the goods or services supplied
• the amount of the increase in price excluding VAT
• 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 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
• the rate and the amount (expressed in sterling) of the VAT credited in respect of the decrease in price

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