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HMRC rule change – impact on TRADACOMS users

Important information for anyone using EDI invoicing to send or receive Prompt Payment Discounts (PPD)

An amendment to VAT legislation on Prompt Payment Discounts (PPD) to align the UK with EU VAT legislation will come into effect on 1 April 2015. This will have an impact on the way PPD information is shown in the TRADACOMS invoice message.

At present, suppliers offering a PPD are allowed to put on their invoice, the VAT due on the discounted price even if the full price is subsequently paid. Customers receiving the PPD offers may only recover as input tax the VAT stated on the invoice.

Under the new rules it is assumed that the discount is not taken. Suppliers must account for VAT on the amount they actually receive and customers may recover the amount of VAT that is actually paid to the supplier.

If the customer decides to take up the discount (which the supplier may not know until they are paid), there are two options to do this:

  1. The supplier issues the invoice for the full amount and then issues a credit note for the amount of the discount and the related VAT. The invoice must include the settlement discount 
  2. If the supplier does not want to issue a credit note, the invoice should contain:
  • The terms of the PPD including the time by which the discount price must be paid
  • A statement that no credit note will be issued
  • And that the buyer can only recover as input tax the VAT actually paid to the supplier
  • The suggested form of words (by HMRC) to be used on such an invoice is:
    "A discount of X% of the full price applies if payment is made within Y days of the invoice date. No credit note will be issued. Following payment you must ensure you have only recovered the VAT actually paid.”
  • Optionally, the invoice can also show the discounted price, the VAT on the discounted price, and the total amount due if the PPD is taken up

For companies using EDI for invoicing there will be an impact. If you are using TRADACOMS then the only solution to comply with HMRC requirements on the new PPD rule is option 1 where:

  • The supplier should issue the invoice for the full amount 
  • The discount information should be provided in the PYT segment but no discount calculations should be included in the message
  • If the discount is taken up, the supplier then issues a credit note for the amount of the discount and the related VAT separately 

Accommodating this change will require amendments to the invoice message format for some companies, plus changes to their backend systems. Option 2 is not possible since the discounted price cannot be shown separately and it is not possible to include the required text in the message in a way that can be easily handled by backend systems, since the data narrative fields are not long enough. 

A third option is to move to the EANCOM invoice message which can handle the new PPD requirements.  It can be used to issue a credit note or, if this is not acceptable to Trading Partners, it is possible to include the suggested HMRC text in the FTX segment (which can easily handle the required length of text) and indicate the discount details.  

Full information is available from HMRC here:

https://www.gov.uk/government/publications/revenue-and-customs-brief-49-2014-vat-prompt-payment-discounts

If you have any questions about how to support this change with GS1 standards please contact us.