VAT Notice 700/22 – posting supplier statements and petty cash update
MTD for VAT is now in operation and there have been a number of amendments to VAT notice 700 to cover the changes which are worth pointing out. The full VAT notice has 34 sections, making it a very heavy and lengthy read but one that is essential to keep up to date with. HMRC also issue guidance and update notices which affect Notice 700. These include notices on how to deal with various VAT schemes such as the Margin scheme (Notice 718), Retails schemes (Notice 727), the flat rate Scheme for small business (Notice 733) and the Tour operators margin scheme (Notice 709/5) and, quite importantly, how to correct errors and make adjustments or claims (Notice 700/45).
The full list of all issued notices can be found here.
VAT Notice 700/22 is the one that covers Making Tax Digital (MTD) for VAT and has, itself, been updated several times since its release in 2018.
ICB has extensively covered the basics of MTD for VAT including who must register and when, the information that must be kept, and the software checks that must be made to ensure a full digital link is maintained.
For record keeping, the rule has always been that all source documents must contain full details of what has been purchased in order for this to be reclaimed as a business expense unless it counts as a simplified receipt when a lower level of detail can be accepted.
Section 4.3.2 of the notice confirms that for each supply made, the information required is the tax point, the value of the supply excluding VAT and the rate of VAT charged. Remember – the tax point will vary depending on whether you are using standard VAT (when the tax point is the date you send the invoice) or cash VAT (when the tax point is the date you pay or receive funds). This section confirms that where more than one supply is recorded on an invoice, only a single entry for the total of the supply needs to be recorded for each rate of VAT.
If your software does not allow differing rates of VAT to be entered separately in one transaction, then the notice also confirms that you can add the supply as one standard rated or one zero-rated supply and correct the VAT via an adjustment. The example given in the notice is that of a ‘meal deal’ where the sandwich is zero-rated, but the drink and snack are standard-rated.
Section 184.108.40.206 covers the use of supplier statements.
ICB has never considered that a statement sent from a supplier to a business is acceptable as a source document as it normally does not contain details of items purchased along with records of any VAT charged.
However, with the introduction of MTD for VAT, HMRC has given rules that mean statements can be accepted as source documents under certain circumstances. HMRC still considers it best practice to record the entries individually, but in cases where a large number of invoices are received from the same source, HMRC will accept the recording of totals from a supplier statement where all the supplies on the statement relate to the same VAT period and the total VAT charged at each rate is shown. These supplies must, however, be cross-references to all the supplies but this can be done outside of the digital records (i.e. in a spreadsheet).
Section 220.127.116.11 covers petty cash transactions.
The same rules will apply to petty cash – small items do not need to be recorded individually but a summary posted can be made provided that individual items have a VAT-inclusive value of under £50 and the total of petty cash recorded in one entry is less than £500 (inclusive of VAT).
All members who deal with VAT registered clients should look at Notice 700/22 to ensure that you have everything in place ready for your first VAT return under MTD.