VAT increase question
Discussion
I'm a bit confused by the recent increase in VAT.
We charged 15% on invoices dated up to the end of last year and obviously, 17.5% thereafter.
As our terms are 30 days, I would only expect to receive VAT at 15% on payments made on those invoices, even if they are made after that date, right?
Today I received a receipt from a bill I paid last week, which was issued at the end of Dec. With this receipt was a note saying I would have to pay an additional 2.5% as the bill was paid after the increase. Is this right??
Personally, I think they are wrong. Can someone please clarify?
thanks.
We charged 15% on invoices dated up to the end of last year and obviously, 17.5% thereafter.
As our terms are 30 days, I would only expect to receive VAT at 15% on payments made on those invoices, even if they are made after that date, right?
Today I received a receipt from a bill I paid last week, which was issued at the end of Dec. With this receipt was a note saying I would have to pay an additional 2.5% as the bill was paid after the increase. Is this right??
Personally, I think they are wrong. Can someone please clarify?
thanks.
Edited by gtr-gaz on Monday 1st February 17:22
Generally speaking B2B the payment date is irrelevant to the vat charged (unless in it's in advance of the invoice), it's as you say the rate recorded & prevailng at the tax point date.
I reckon somebody's trying to get some extra cash from you. Did they sent a revised later dated invoice at 17.5%?
I reckon somebody's trying to get some extra cash from you. Did they sent a revised later dated invoice at 17.5%?
They are wrong.
The correct VAT rate is the rate applicable when the product was supplied, or the majority of the service was supplied if it straddles Jan 1st.
It does not matter what date is on the invoice or when you pay it.
That said, when speaking to public bodies after the last rate change we were told that their 'systems' made it impossible to comply with this.
The correct VAT rate is the rate applicable when the product was supplied, or the majority of the service was supplied if it straddles Jan 1st.
It does not matter what date is on the invoice or when you pay it.
That said, when speaking to public bodies after the last rate change we were told that their 'systems' made it impossible to comply with this.
Thanks, I thought I was right.
Company in question are archtitects and should know better.
I will send them a rather snotty letter telling them to change accountants!
ETA, I think I'll also send a copy to the VAT office, see what they make of it.
Company in question are archtitects and should know better.
I will send them a rather snotty letter telling them to change accountants!
ETA, I think I'll also send a copy to the VAT office, see what they make of it.
Edited by gtr-gaz on Monday 1st February 17:36
gtr-gaz here.
Looks like I was wrong. Just as well my OH double checked before I sent a letter of disapproval!
I didn't notice that the invoice I received had the phrase "this is not a VAT invoice" on it (although it had VAT of 15% added to it)
How does that work then? It seems their VAT rate is only applicable when they receive payment. Never heard of that before.
Looks like I was wrong. Just as well my OH double checked before I sent a letter of disapproval!
I didn't notice that the invoice I received had the phrase "this is not a VAT invoice" on it (although it had VAT of 15% added to it)
How does that work then? It seems their VAT rate is only applicable when they receive payment. Never heard of that before.
This would have been a "Pro-Forma" invoice which is not a "Legal Invoice" - therefore any VAT quoted on it has no bearing on what might be due on the actual invoice when it is eventually issued.
Pro-formas are used by businesses who want to delay having to pay any VAT over to HMRC until they receive actual payment from their customer. For many businesses, this method of accounting for VAT can be accomodated under the Cash Accounting system but some businesses may not be able to avail of Cash Accounting and will therefore resort to issuing "Pro-Forma" invoices instead.
Pro-formas are used by businesses who want to delay having to pay any VAT over to HMRC until they receive actual payment from their customer. For many businesses, this method of accounting for VAT can be accomodated under the Cash Accounting system but some businesses may not be able to avail of Cash Accounting and will therefore resort to issuing "Pro-Forma" invoices instead.
Eric Mc said:
Pro-formas are used by businesses who want to delay having to pay any VAT over to HMRC until they receive actual payment from their customer.
we use pro-formas because we're dealing with a company that doesn't have a good trading history, and we want the money before manufacture of the goods or services
because we don't know if they'll be able to pay their invoice in 30/60 days
it's also nice to receive money from the customer, and then have 60days credit from the supplier
The problem is, how do pro-formas get entered on your accounting sysytem? A pro-forma is NOT a bona-fide invoice and therefore does not have the full legal weight of "obligation to pay" behind it. On that basis, the debt cannot be entered into your accounting system as if it was a real invoice. It can play havoc with credit control because you will have genuine creditors based on proper invoices and you will also have "pseudo-creditors" based on pro-forma invoices.
Eric Mc said:
The problem is, how do pro-formas get entered on your accounting sysytem? A pro-forma is NOT a bona-fide invoice and therefore does not have the full legal weight of "obligation to pay" behind it....
Very interesting!As a layman, I get the impression a company doing this is either being greedy or, sailing very close to the wind and I would think twice before doing business with them (had I known)
The traditional piece of paper issued to a customer to encourage them to pay you is called an "invoice".
It was for that reason that VAT regulations were centered on the issuing dates of invoices.
Businesses which issue "pro-forma" invoices are, to some extent, circumventing standard accounting and business procedures by issuing an alternative request for payment document compared to a more traditional invoice.
This has been going on for years and HMRC don't seem too bothered by it.
It was for that reason that VAT regulations were centered on the issuing dates of invoices.
Businesses which issue "pro-forma" invoices are, to some extent, circumventing standard accounting and business procedures by issuing an alternative request for payment document compared to a more traditional invoice.
This has been going on for years and HMRC don't seem too bothered by it.
Eric Mc said:
The problem is, how do pro-formas get entered on your accounting sysytem? A pro-forma is NOT a bona-fide invoice and therefore does not have the full legal weight of "obligation to pay" behind it. On that basis, the debt cannot be entered into your accounting system as if it was a real invoice. It can play havoc with credit control because you will have genuine creditors based on proper invoices and you will also have "pseudo-creditors" based on pro-forma invoices.
Why should it play havoc with credit control, I would have thought credit control would like ALL customers to pay for goods/services prior to receiving the same.Wings said:
Eric Mc said:
The problem is, how do pro-formas get entered on your accounting sysytem? A pro-forma is NOT a bona-fide invoice and therefore does not have the full legal weight of "obligation to pay" behind it. On that basis, the debt cannot be entered into your accounting system as if it was a real invoice. It can play havoc with credit control because you will have genuine creditors based on proper invoices and you will also have "pseudo-creditors" based on pro-forma invoices.
Why should it play havoc with credit control, I would have thought credit control would like ALL customers to pay for goods/services prior to receiving the same.Many, if not most, businesses operate on "Terms of Credit" with their suppliers and customers and/or operate a business account with their suppliers or customers.
Therefore, they MUST run a tightly controlled "Debtors' Ledger" system for their customers. The essential first step of running a Debtors' Ledger is the entry of each customer's invoice as it is generated by the actual sale. Payment will typically not be expected from the customer for at least 30 days.
The problem with a pro-forma Sales Invoice is that you cannot really enter it onto your Sales Ledger system proper because with a pro-forma Sales Invoice, you are declaring that a sale has not yet been made. You will want the pro-forma to be paid, of course, so you will have to run a separate "Pseudo-Debtors' Ledger" outside of the proper "Debtors' Ledger" to keep track of unpaid Pro-Forma Sales Invoices.
Also, if using a computerised book-keeping system you will want to keep the pro-forma out of the system as if you try to enter it into the system the VAT on the sale will be entered into the system and you will have to pay it as if it had been generated by a normal invoice. And, let's face it, the main reason business use pro-forma sales invoices is to delay having to pay teh VAT on that sale.
It can all get very messy.
Please Eric Mc take this posting in the spirit (good) that it is intended.
Your postings on this subject of pro-forma invoices, reminded me quite strangely on my very first employment, that employment being as a door to door vacuum cleaner salesman. The first 4 weeks employment was as a trainee, then, if acceptable to the company, followed by full employment on a small basic salary and topped up with commission.
Any way 3 weeks into the training and the sales manager approaches me and saids, “Doug, (that is me) how are you doing”, I reply “great, I have had 5 people promise me that when they need to replace their vacuums, they will order their new one from me”. The sales manager replied, “Doug, (that is still me) NEVER live on promises”.
That Eric Mc is all what I see a pro-forma invoice to be, “a promise”, and if I operated a small, medium size business, or worked in their appropriate sales offices, I would not take on action on that “promise”, not even telling either stock or credit control, until the pro-forma was paid. For only once paid, does that pro-forma/promise become a firm order.
Your postings on this subject of pro-forma invoices, reminded me quite strangely on my very first employment, that employment being as a door to door vacuum cleaner salesman. The first 4 weeks employment was as a trainee, then, if acceptable to the company, followed by full employment on a small basic salary and topped up with commission.
Any way 3 weeks into the training and the sales manager approaches me and saids, “Doug, (that is me) how are you doing”, I reply “great, I have had 5 people promise me that when they need to replace their vacuums, they will order their new one from me”. The sales manager replied, “Doug, (that is still me) NEVER live on promises”.
That Eric Mc is all what I see a pro-forma invoice to be, “a promise”, and if I operated a small, medium size business, or worked in their appropriate sales offices, I would not take on action on that “promise”, not even telling either stock or credit control, until the pro-forma was paid. For only once paid, does that pro-forma/promise become a firm order.
Try that with big customers and see how far you can get.
Credit terms is actually the life blood of most business and if you insisted on cash up front for every job you did you would not stay in business for very long.
There are valid reasons why cash up front may be necessary - but it is normally the exception rather than the rule (unless you work in retail, of course).
Credit terms is actually the life blood of most business and if you insisted on cash up front for every job you did you would not stay in business for very long.
There are valid reasons why cash up front may be necessary - but it is normally the exception rather than the rule (unless you work in retail, of course).
From experiance of working in a small firm, Pro Forma invoices where used as a cash first methhod for new/unkown customers, and also for customers that had been problem payers, they where also handy as a threat before putting a company on stop. Basicly saying stick to our credit agreement or we will start making sure you pay us before we start work.
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