Her Magesty's Revenue and Customs (HMRC) has outlined changes to the VAT invoice that offers a Prompt Payment Discount (PPD) to take effect on April 1st, 2015. This change will affect any VAT (Value Added Tax) registered business that offers their debtors (or customers) a prompt payment discount. (For example, a business may offer a discount of 2% of the full price if payment is made within 10 days of the date of the invoice.) This article explains how Microsoft Dynamics GP will handle these changes to the UK VAT law on Prompt Payment Discounts and the action items for you.
To read more information about this regulatory change for Prompt Payment Discounts and to view an example of a suggested invoice, please refer to the HMRC website for further details.
Q1. How does Microsoft Dynamics GP handle this change?
• If the payment is received at the discounted amount before the PPD offer has expired, the transaction and distributions are correct in Microsoft Dynamics GP, and no additional steps are needed. (Refer to the EXAMPLE section below for 'Payment Scenario 1'.)
• However, if the payment is received for the full amount after the PPD offer date has expired, then additional steps would be needed, as the payment will have an 'unapplied' amount left on it in the amount of the discount. (Refer the EXAMPLE section below for 'Payment Scenario 2'.)
• There are no changes to the invoice form in Microsoft Dynamics GP. You will be responsible for modifying the invoice form as noted in the HMRC website as desired. (For guidelines on when a support case becomes a consulting engagement for any report modification, please refer to KB 850201.)
Q2. If the full amount was received after the PPD offer date expired, what does the user need to do?
The HRMC suggests two options:
Option 1: You may enter a credit note for the amount of the discount to evidence the reduction in consideration.
Option 2: Or alternatively, you can edit the invoice form to show both the original and discounted amounts and add a statement that the customer can only recover as input tax the VAT paid to the Supplier. Refer to the HMRC website for the exact wording. If you follow this option, the user must also:
a. Enter a debit memo in Microsoft Dynamics GP for the 'unapplied' amount (ie. discount amount), and apply it to the unapplied amount on the cash receipt.
b. The user should install and run the 'VAT Tax Routine' to update the tax tables with the correct amounts, so the correct amounts are reported on the VAT return.
Q3. What does the 'VAT Tax Routine' do?
The VAT Tax Routine will:
• Print a report for all Debtors to show all payments that have an unapplied amount left on them.
• Update the tax tables with the correct original full amounts so the invoice amount and tax amounts are correct, and can be accurately reported on the VAT return.
Q4. Where can I download the hot fix for the 'VAT Tax Routine'?
• If using Microsoft Dynamics GP 2010 SP4 or higher, click HERE for the hot fix.
• If using Microsoft Dynamics GP 2013 R2 or higher, click HERE for the hot fix.
• If using Microsoft Dynamics GP 2015 RTM or higher, click HERE for the hot fix.
*IMPORTANT NOTES:
• You must be running GP2010 SP4 (version 11.00.2248 or higher), GP2013 version (12.00.1745 or higher), and GP2015 (version 14.00.524 or higher) to apply these hot fixes.
• Each zip file includes a VatDaybk.cnk, Procs.sql and Readme.txt file. Please follow the Readme.txt instructions carefully.
• Also remember that this hot fix could get overwritten if you install a patch release over it that does not yet include this hot fix.
• After you install the hot fix to create the VAT Tax Routine, it can be found under Microsoft Dynamics GP | Tools | Routines | Company | VAT Tax Routine.
Q5. Do I need to run the VAT Tax routine if I use VAT 100 instead of VAT Daybook?
You will want to run the VAT Tax routine if you have customers that pay a full amount after the PPD offer date has expired, whether you are using VAT 100 or VAT Daybook, the steps will be the same. Both modules pull from the same tax tables.
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EXAMPLE: Here is an example of both payment scenarios:
Scenario:
• The 'Calculate Terms Discount Before Taxes' option is marked in the Company setup options.
• The debtor will receive a 2% discount if paid within 10 days (on the Sale/Purchase and Tax).
• The debtor has one tax detail for 20%.
• A sales invoice is entered for £1000. VAT tax is £200 (20% tax) and PPD offered is £20 (2% discount).
Example:
Sales invoice dated April 5, 2015 would have these distributions:
SALES (1000)
TAX (196) --20% tax on the £1000 minus 2% PPD offer (£200 - £4)
AVAIL 20 --2% PPD offer available on the £1000 sale.
RECV 1176
Payment Scenario 1: Payment made April 10, 2015 (within 10 day discount date)* would have these distributions:
CASH 1176
TAKEN 20 --records discount taken
AVAIL (20) --clears out Discount Available account
RECV (1176)
*If the payment is made within the discount period, the transaction and distributions are correct. No further adjustment is needed.
Payment Scenario 2: Payment made April 28, 2015 (made after discount date)** would have these distributions:
CASH 1200
AVAIL (20)
RECV (1180) --Offsets £1176 debit, so difference of £4 in remains in Receivables account
**If the payment is made after the discount date, the payment has £4 left unapplied. An adjustment is needed to fully apply the payment and clear the receivable. To do this:
1. Key a debit memo:
a. Enter £4 in the Tax field.
b. In the Tax Entry window, enter the VAT tax detail.
c. Leave the sales amount field blank.
d. Apply to the £4 left unapplied from original cash receipt.
2. Post.
The default distributions are:
TAXES (4)
RECV 4 --clears out the Receivables account for the difference above
Most debtors usually take the PPD discount, so hopefully the debtors you need to key debit memos for will be low in number.
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I hope this information will be helpful to you. Please refer to the HMRC website for any additional guidance.
Thank you!
Cheryl Waswick | Sr. Technical Support Engineer | Microsoft Dynamics GP
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