Jim Etherton, of COINS and the BASDA Financials & Accounting Group, shares his views:
HMRC published the outcome to the consultation on VAT Prompt Payment Discounts on 10 December. The requirement for suppliers to issue credit notes or revised invoices has been dropped.
This initially seemed like a victory for common sense and appeared to show that HMRC had listened to the responses from BASDA and others. However, when the detailed guidance was published on 22 December, we were extremely disappointed. HMRC have given suppliers the choice as to whether to issue credit notes for prompt payment discounts taken up. Customers then have to follow different processes for adjusting their input VAT dependent on the process chosen by the supplier.
We have contacted HMRC pointing out that this is completely unworkable and cannot be implemented in practice in its current form. We have proposed that our software will not support the method using credit notes and that HMRC should accept that business customers paying invoices and taking a prompt payment discount should be able to adjust their input VAT in respect of the discount at time of payment regardless of the process chosen by their supplier.
We await a response from HMRC. Delivering and implementing the necessary software changes ready for 1 April 2015 will be a huge challenge given the very short time frame, even just supporting a single method rather than the two allowed by HMRC.
HM Revenue and Customs Brief 49 (2014): VAT – Prompt Payment Discounts