RCB/6/19 Changes in accounting for VAT after prices are altered
Revenue & Customs Brief, Issue 6. 17 July 2019
1 Purpose of this brief
This brief explains HMRC's new rules from 1 September 2019 for adjustments to VAT following increases or reductions in the price of goods or services.
HE providers in England and their advisers.
The prices businesses charge for goods and services can be reduced after VAT has been accounted for on a supply. An example is when a business delivers goods, some of which are faulty, and it agrees with its customer that the price should be reduced.
When this occurs a business normally sends its customer a credit note and gives a refund. Under the VAT Regulations 1995 ('the Regulations'), the suppliers must reduce their output tax, and their VAT-registered customers must adjust their input tax.
Businesses may also increase the price of a supply, for example, when more work is required to complete a task than was originally anticipated. In these cases, businesses normally issue debit notes for the increased amount and account for the additional VAT. Their VAT-registered customers may then recover the additional input tax, subject to the normal rules.
Price adjustments may occur long after goods or services have been supplied. Regulation 38 of the Regulations applies to cases where the price change occurs after the supplier has already accounted for the output tax on the original supply in a VAT Return.
The current rules do not impose a time limit for making VAT adjustments when price adjustments