At one of my clients we paid for some supplies up front via Debit Card. The goods were £49.95 + VAT, so we paid £59.94. The invoice/receipt was then issued with a 2.5% settlement discount if paid so the VAT on the receipt is calculated with the 2.5% settlement discount. So the invoice is for £49.95 + VAT of £9.74. Total being £59.69, which is not what we paid.
Can we ask them to re-issue the invoice without the 2.5% settlement discount calculation, therefore showing the correct VAT amount?
Their accounts lady has told me she can't as it is against the law and I must claim what is on the invoice, so she will leave our account £1.24 in credit. This is a supplier we won't ever be using again, so won't ever get that back. Surely she can credit that invoice and re-issue without the 2.5% settlement calculation that at the time we were ordering, we weren't allow due to late payments on the account?
So this would suggest we can still claim the £9.99 VAT and the supplier was incorrect in issuing it with a discounted rate. They should be issuing a credit note their end to account for discounts if/when they are taken. Have I understood this correctly?
The rules changed in April. Prior to that, if you didn't take the settlement you still inputted the discounted VAT. Now, as you say, they have to amend it their end if you take the settlement and issue you with a credit note.
However, what they've done is silly and if they repeat it with others it must be a nightmare to unravel. Also, if they've calculated a 2.5% settlement, why Haven't they given you it? I make it £58.44
__________________
John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
They're required to account for the VAT on the money actually received for the goods supplied. If they're saying they've only received £48.70 for the goods and are, consequently, only accounting for £9.74 in VAT (£58.44 in total), then they now owe you a refund of the £1.50 you have overpaid them by.
Regards,
Edit. Sorry I misread your original post and missed the fact that they haven't actually issued you with a credit note for £1.25 for the settlement discount (no VAT) to line up the amount received for the goods supplied and the amount upon which VAT has been charged. Once that's done they'll have a credit balance on their sales ledger for £1.50 which they should refund. Some earlier musings on this subject can be found here http://www.book-keepers.org.uk/t59398711/prompt-payment-discount-vat-change/
-- Edited by Onion4Sage on Thursday 3rd of December 2015 04:02:56 PM
"So the invoice is for £49.95 + VAT of £9.74. Total being £59.69, which is not what we paid. "
The revised invoice should say £48.70 + £9.74 VAT, which as John says, is £58.44
What you have explained above simply reduces the VAT by 2.5% not the net figure?
But hey look at this, from the Sage website... possibly where the issue has arisen?
Under new rules, businesses are required to:
Notify their customers of the VAT discount available and the amounts the customer is due to pay. This can be done in one of two ways:
Issue an invoice detailing the full net and VAT payable. If the invoice is paid within the discount period, issue a further VAT only credit noteto account for the VAT discount.
Issue an invoice document which states the amount of discount (net and VAT) that can be claimed if the invoice is paid early, as well as the full amount (net and VAT) due after the settlement discount period. If the invoice is paid within the discount period, there is no need to issue an additional credit note. However, internal VAT adjustments will be required.
When an invoice is paid immediately, the settlement discount is automatically taken. The VAT is discounted on the invoice and no subsequent VAT adjustment is necessary.
The underlined bit speaks of VAT only, and not net! A bit misleading after it says "full net"
"The goods were £49.95 + VAT, so we paid £59.94."
£49.95 x 20% = 9.99 so that suggests the 2.5% has not already been deducted in the net, otherwise the VAT wouldn't be 20% of the net, it would be a bit more - we would be seeing £48.70 + £9.99
It appears to me that Sage's advice should be saying issue the discounted net, with full VAT and then issue a VAT only credit note... unless I have completely misunderstood the new rules!
But hey look at this, from the Sage website... possibly where the issue has arisen?
Under new rules, businesses are required to:
Notify their customers of the VAT discount available and the amounts the customer is due to pay. This can be done in one of two ways:
Issue an invoice detailing the full net and VAT payable. If the invoice is paid within the discount period, issue a further VAT only credit noteto account for the VAT discount.
Issue an invoice document which states the amount of discount (net and VAT) that can be claimed if the invoice is paid early, as well as the full amount (net and VAT) due after the settlement discount period. If the invoice is paid within the discount period, there is no need to issue an additional credit note. However, internal VAT adjustments will be required.
I agree that Sage have expressed this poorly (incomprehensibly? - no mention of the discount itself).
Way (1), I don't like a solution that requires the submission of VAT only credit notes (for relatively small amounts) every time an offered settlement discount is taken up. (I wonder what percentage of offered discounts are taken up? Anyone have enough experience in this area to hazard a guess even if only for a particular industry?)
Way (2), does Sage 2016 provide an invoice template in the format mentioned? Again, adjustments required when the discount is taken. Would there not be fewer adjustments if one were only needed if the settlement discount was not taken?
I think I still prefer the approach noted in the link on my post above.
So basically as we paid £59.94 up front before the invoice was even issued, I am correct that the invoice should have shown £49.95 + VAT @ £9.99 and the total being what we paid as £59.94.
In fact even if we'd taken a settlement discount the invoice should have still reflected the costs of the goods as above with a credit note to reflect the discount.
I need to go back to the supplier (who incidentally told me I had no idea what I was talking about and was in the wrong job) with possibly the link I put above to tell her she needs to reissue the correct invoice. Wish me luck!!
If they said that, I would be finding a new supplier!! Cheeky fecker!
I think the problem is, you paid the full £59.94, so they have to declare £9.99 VAT and you claim that.. but in paying £49.95 plus VAT, you haven't had the benefit of the 2.5% discount.
If there was no VAT, you would have just paid £48.70, not £49.95. All that is needed from them is a credit note for £1.25 + VAT, that can be applied against any further purchase or refunded.
If they had invoiced you £48.70 + £9.99 then a VAT only invoice could have been issued.
This link is a bit convoluted but explains both supplier and customer situations
This may be too simplistic, but you paid up front unaware of the settlement discount available to you (for which you qualified). In correctly processing this transaction your supplier should only be able to arrive at an amount of £58.44 due from you in their sales ledger account - any other total would reflect incorrect accounting on their part. Thus, you are due a refund of £1.50. I think they've applied the settlement discount in their books (claiming you were awarded the discount) and intend to pocket the £1.50 credit on your account. The amounts may be insignificant but, in effect, you're being swindled out of £1.50 because they can't be bothered to refund your overpayment.
If the supplier has denied you the settlement discount (how can they when you clearly met the terms?), and you're willing to accept that, then the VAT rules clearly state that they must furnish you with a VAT invoice for the amount of VAT chargeable on the cash received for the goods. As a one time customer, with no opportunity to apply credits on your account against future purchases, your argument is that, if they don't give you your £1.50 back, they've clearly taken £49.95 for the goods and must therefore, by law, record £9.99 VAT on their invoice. They want their cake and eat it. They're saying you got a settlement discount (so the VAT recorded is OK) and the fact that they won't refund an overpayment on your account is a separate unrelated matter. They must be in the "there or thereabouts" camp when it comes to bookkeeping.
Your supplier looks to be running things exactly the same way as a supplier with Sage Line 50 v21 (2015) or earlier would be doing if they had not followed Sage's guidance for dealing with the new VAT rules (https://my.sage.co.uk/public/help/askarticle.aspx?articleid=32645#tabs-1). Other software would probably produce the same result if it has not been updated to cater for the new VAT requirements yet.
Sage recommend upgrading their software by either moving to v22 or by downloading and installing an update to your existing version. The updates, however, are only available to customers who have purchased Sage Cover. Sage Cover customers on v18 (2012) or below will have to make modifications to an invoice layout (for which they provide instructions at the link above) to complete the fix. If you're on v21 or earlier, and don't have Sage Cover, they recommend that you use a workaround, again involving modifications to an invoice layout.
In the 'Steps' tab on the link above Sage outline what a Sage user who doesn't have the update should do as follows:
If you've entered invoices with settlement discount dated on or after April 1st 2015, the following steps advise how to correct the situation.
If the invoice hasn't been posted
Delete the invoice, install the required update and enter the invoice again.
If the invoice has been posted
Issue a credit note to the customer for the full value of the invoice.
Allocate the credit note to the invoice.
Install the required update.
Enter and post a new invoice.
It seems to me that that is exactly what you've suggested that they do. However, whilst that would remove the apparent inconsistency between the net and VAT amounts on the invoice received, it'd still leave them owing you £1.50.
For any Sage users out there, I'm appalled that Sage have left their users in a situation where they either: have to upgrade to v22; or, subscribe to Sage Cover to have their older version upgraded. Additionally, fixing the invoice layout is only half the story, the reports called "Customer Invoices within Settlement Terms" and "Supplier Invoices within Settlement Terms" are a crucial part of operating settlement discounts and managing any necessary adjustments. Sage don't appear to have detailed the necessary adjustments for these reports anywhere. Given that many Sage users will be daunted by the prospect of making adjustments to key documents in Report Designer, I think Sage should have made new report layouts available for free download to all customers. Trying to capitalise on these VAT changes is below the belt Sage. Come on, do the right thing by your customers.
In the meantime, for those Sage users who neither wish to upgrade to v22 (2016) nor pay for Sage Cover just to get the updates, I hope to make amended report layouts and associated instructions available for free download from our site as soon as I can (unless someone can tell me of somewhere that these are already freely available?).
Thanks Ian. I am back at the client on Friday and will call the supplier again. Not looking forward to it though as the accounts lady is a righteous dragon. Quite liking the opportunity to prove her wrong though.
Incidentally the payment was made on 7th Nov but they didn't issue the invoice till 16th Nov, so going by the HMRC article, the invoice should have been produced to reflect what we actually paid.
I haven't been able to establish definitively whether what the supplier is doing is illegal, but it is certainly not "best practice". In other words, I'm not 100% sure that you can say she's WRONG. After all, as outlined above, she may well have granted you the settlement discount and declared the amount of VAT she has paid to HMRC to you on the invoice. If you've recorded the figures as stated on her invoice, you need to process the settlement discount (using the correct T codes but with VAT as £0) to be in sync with her. You'll then show her as owing you £1.50.
Can any of the VAT experts on here confirm that old style settlement discount invoices are illegal? (References to specific legislation would be helpful)
EDIT: P.S. So far as I can see the invoice the supplier has issued, whilst confusing in light of current best practice, still meets the requirements of Regulation 14 of the VAT Regulations 1995 (SI 1995/2518) (http://www.legislation.gov.uk/uksi/1995/2518/made). No?
Regards,
-- Edited by Onion4Sage on Thursday 10th of December 2015 08:31:13 AM
I can't possibly see how the supplier is right Ian. They either issue a full invoice offering 2.5% settlement then issue a credit note if paid promptly OR they issue an invoice showing the settlement terms available with a note to say if the customer takes the settlement discount they adjust the VAT accordingly and claim only that amount of VAT back. The supplier then adjusts their invoice internally.
What they can't do, but was the case prior to April, is issue an invoice for the full amount but showing the settlement VAT.
(I was going to put a link here but just spotted that both Sammy and Michelle have done so already upthread)
The supplier has further compounded the issue knowing that the amount was been paid at the full amount but then issuing an invoice with the settlement VAT on it. If they're doing that on every invoice they send out then they are underpaying their VAT.
__________________
John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
What they can't do, but was the case prior to April, is issue an invoice for the full amount but showing the settlement VAT.
...
The supplier has further compounded the issue knowing that the amount was been paid at the full amount but then issuing an invoice with the settlement VAT on it. If they're doing that on every invoice they send out then they are underpaying their VAT.
John,
What I'm asking is, if the supplier has done exactly what they would have done prior to April with a sale that qualifies for settlement discount, can anyone point to LEGISLATION (not guidance) that makes it "wrong". I don't doubt that it is bad practice and confusing, but where is it actually made illegal?
They're only underpaying their VAT if they don't issue additional VAT invoices in the event that their customers don't qualify for settlement discount. We don't know that that is the case because Sammy's client did qualify for settlement discount and the VAT paid (in those circumstances) was correct. Under the old system the supplier would reduce the inflated net on the invoice by processing a settlement discount entry in their books. No additional paperwork would be transmitted to the customer. I think that is what the supplier in Sammy's case has done. I think they've taken the consideration for the sale as the discounted amount, have processed the settlement discount, and are treating Sammy's client as having overpaid by £1.50.
