Reply to: VAT-only invoice

[PhilAtBFCA]

VAT Only Invoice

Hi floehopper

I think i would take a step back from this and look at your contractual terms.

If you have a price + VAT then I dont think there is an issue. Bill with VAT, either with a VAT Only Invoice or with replacement invoices with VAT on them, both are valid documentation for HMRC, which ever the client is comfortable with.

If they refuse to pay then you would have to take the normal action that you would take when a client refuses to pay the invoice.

In the meantime for cash flow purposes , you may wish to switch to cash accounting, otherwise you may have to pay the vat on the invoices whilst getting agreement from the client.

I hope that helps.

Phil

[expat]

Well that's fine, as long as they have no problem paying the VAT when you can issue them with a VAT invoice (or a separate invoice for the back-dated VAT).

They didn't, but as I said what would have happened if the agency had gone bust in the meantime? If I would have remained liable for VAT even though I could not collect it and couldn't possibly have collected it at any given moment, then my job in the chain would not even be "unpaid tax collector", it would be "mug".

[TheCyclingProgrammer]

They clearly preferred the method where they paid me later when I was registered, to the method where I repaid them later if it didn't come through. Can't say I blame them.

Well that's fine, as long as they have no problem paying the VAT when you can issue them with a VAT invoice (or a separate invoice for the back-dated VAT).

[expat]

I assume their response wasn't a good one; did you point out that it was official HMRC guidance; I don't get why anybody who is VAT registered would kick up a fuss about this.

You'll either get your VAT registration which means the extra money can be accounted for as input VAT once they have the VAT invoice, or in the unlikely case that it doesn't, you could probably refund them the difference.

Yes, they flatly refused, with a tone of incredulity at my suggesting it.

My statement that "that is what HMRC say on their website that I should do" was met with their statement that "that is not what we do".

They clearly preferred the method where they paid me later when I was registered, to the method where I repaid them later if it didn't come through. Can't say I blame them.

[TheCyclingProgrammer]

I read this too, so I tried it on the agency while I waited for my VAT registration. They were quite firm in their response to that.

I assume their response wasn't a good one; did you point out that it was official HMRC guidance; I don't get why anybody who is VAT registered would kick up a fuss about this.

You'll either get your VAT registration which means the extra money can be accounted for as input VAT once they have the VAT invoice, or in the unlikely case that it doesn't, you could probably refund them the difference.

OK, so I eventually got the VAT from the agency. What would have happened if it had gone bust in the meantime? Would HMRC have made me pay it anyway?

Unless there any special rules that I'm not aware of, the VAT still needs to be paid to HMRC.

[expat]

Really? Would you care to quote a HMRC source for that, as I'm yet to find any official guidelines that state anything about "VAT registration pending" notices. Which "rules" are these and where are they in the VAT guide or relevant legislation (I can't find it).

In fact, it would seem that HMRC's official guidance is to adjust your rate so the original invoice shows the same total as the final VAT-inclusive amount, even though there is no separate VAT item. The invoice should then be re-issued as a VAT invoice once a VAT number has been received..

This would still mean the recipient of the invoice having to adjust their accounts (even though they don't have to pay any more money) as the VAT portion cannot be accounted as such until they have the VAT invoice.
....

I read this too, so I tried it on the agency while I waited for my VAT registration. They were quite firm in their response to that.


OK, so I eventually got the VAT from the agency. What would have happened if it had gone bust in the meantime? Would HMRC have made me pay it anyway?

[malvolio]

Now that's interesting. HMRC's website says the following:

Until you receive your VAT registration number you must not charge VAT, or show VAT as a separate item on your invoices. To make sure that you do not lose income in the period after you applied for VAT registration but before you receive your VAT registration number, you should increase your prices by the VAT rate relevant for your goods or services, and explain to your customers why you are doing so.
Once you are registered, you can then reissue those invoices, amended to show your VAT registration number and the VAT charged. This will ensure that your VAT-registered customers can reclaim the VAT that they have paid.

Which is not something I've ever seen quoted anywhere before...

Any accountants care to comment?

[TheCyclingProgrammer]

That's why the rules say you should note on all relevant invoices that VAT registration is pending.

Really? Would you care to quote a HMRC source for that, as I'm yet to find any official guidelines that state anything about "VAT registration pending" notices. Which "rules" are these and where are they in the VAT guide or relevant legislation (I can't find it).

In fact, it would seem that HMRC's official guidance is to adjust your rate so the original invoice shows the same total as the final VAT-inclusive amount, even though there is no separate VAT item. The invoice should then be re-issued as a VAT invoice once a VAT number has been received..

This would still mean the recipient of the invoice having to adjust their accounts (even though they don't have to pay any more money) as the VAT portion cannot be accounted as such until they have the VAT invoice.

I still maintain the OP should contact their local VAT office to see what they have to say about it.

From a purely ethical point of view, if the OP told his client at the time that he would be later issuing a VAT invoice, and they accepted this, then I'd say the client is just messing him around and I wouldn't consider taking any further work from them.

[malvolio]

Hmmm, tough justice. Back when I started up there was about a 2 month delay is getting VAT numbers. I invoiced as "VAT pending, VAT only invoice to follow" and never had a hitch when I invoiced the VAT a couple of months later.

Precisely.

[Fred Bloggs]

Hmmm, tough justice. Back when I started up there was about a 2 month delay is getting VAT numbers. I invoiced as "VAT pending, VAT only invoice to follow" and never had a hitch when I invoiced the VAT a couple of months later.

[malvolio]

Chaps, of course you are required to charge invoices with VAT applied when you are VAT registered, but if you haven't told your invoicee that you will be retrospectively applying VAT at some point, they are under no obligation to accept the later application of a VAT charge to an invoice they had treated as VAT free. Apart from anything else, it would make their own VAT100 incorrect and break the audit trail that have to keep.

That's why the rules say you should note on all relevant invoices that VAT registration is pending. The fact the OP loses the VAT he has to repay to HMRC is not part of the discussion: charging output VAT correctly is his own problem.

The only course of action is to negotiate with the client and see if the original invoices can be cancelled and correctly re-issued (although personally I wouldn't hold my breath). However, the client is under no obligation to do anything to help. Tough, but them's the rules.

[moony1234]

Just to chime in I also had the same when starting out, agency paid the VAT only invoice without any problems 3 months after I started...

[Clippy]

I had a very similar situation when I started trading.

Wasn't VAT registered to begin with and all invoices submitted to my agency made no mention of VAT whatsover.

A few months later, applied for VAT registration which came within 2 weeks and was back dated by a few weeks.

This meant a couple of invoices which had already been submitted and paid needed VAT applied to them and collected from the agency.
Hence, submitted a VAT only invoice to the agency cross-referencing the previous invoices.

Agency duly paid the VAT only invoice no questions asked.

At the time, I too was concerned that they may not pay and put this to my accountant who did agree that they could refuse to pay the VAT only invoice but they were legally obliged to.

As others have said, I would re-submit the invoice with a cover letter highlighting the fact that they are legally obliged to pay the VAT due.
If they still refuse, refer the matter to your local VAT office.

Or you could call the VAT Helpline for advice.

[blacjac]

I agree with Lurkered path.
I would send a copy of the company VAT certificate with another invoice and a letter explaining the situation.

In the meantime contact the VAT office for advice, but in my opinion, the client and their accountants are eaither just trying it on, or are increadibly dim.....

[TheCyclingProgrammer]

Would suggest that the OP contact their local VAT office and ask them how to proceed before he ends up being out of pocket.
I believe that you are still liable to pay any vat due post registration date even if you cant collect it from the party down the line.

Yes, definitely and if the OP cannot resolve this with the client he will be out of pocket. I agree with your advice on contacting the local VAT office and I don't think they'll be too impressed with the OP's client trying to get out of paying VAT.

Also, HMRC's Notice 700 makes it quite clear that the normal 30 day limit on charging VAT does not apply if you are waiting for your registration to come through, in which case you have 30 days from receipt of your certificate to issue a VAT invoice.