PPD -Catering for the changes in Opera 3 and Opera II
New releases of Opera 3 and Opera II will allow invoices to be calculated in line with the PPD legislation. The following Financial applications and stationery are affected:
EC VAT application
Users who have the EC VAT application can deselect the ‘VAT After Discount (Settlement)’ checkbox of the Home Country record on the Countries form. This will allow the VAT to be calculated before the settlement discount percentage figure is considered. The Opera 3/Opera II Importer has been changed to respect this setting.
Users who do not have the EC VAT application will see a new date control on the Options tab of the Company Profiles form. This will allow the user to state the date from when VAT should be calculated before settlement discount. By default the date will be set to 1 April 2015.
From an Invoice generation perspective the software will work the same irrespective of whether EC VAT is in use or not.
New stationery – Pegasus Business Forms
A new SOP Invoice (PEG630 stationery design) and Sales Statement designs (PEG610 stationery design) will be available to assist with the new requirements.
If Prompt Payment Discounts are to be offered by a business to its customers, the invoices generated should be done so using the new PPD invoice design (PEG630). This design will highlight to the recipient of the invoice the amount of VAT that is required to be adjusted if full payment of the invoice is made by the stated dates.
If a customer takes up the offer of Prompt Payment Discount, the VAT liability will need to be reduced. This can be achieved by raising a Credit Note. Raising the transaction through the Sales Order Processing or Invoicing application will mean that documentary evidence of the PPD Credit is automatically achieved. It is the responsibility of the business user to provide HMRC with documentary evidence of a PPD Adjustment if required to do so in a VAT audit.
The user will need to consider how they want to treat the Sales Analysis of the Credit Note posting, either posting to a Discounts Allowed P&L Account or the Sales P&L Account used on the original invoice line.
When the Receipt is banked, the Invoice and Credit Note can be allocated against the Receipt to close down the transaction.
When sending Sales Statements to their customers, the business should use the new Sales Statement design (PEG610) that will display details of the second reference of the Credit Note, so this could be used to identify which Invoice the PPD Credit relates to.
Here’s an example of how PPD will work:
The customer orders £100,000 of standard VAT rated goods item on 01/04/2015 and is offered a 10% Settlement Discount (Rate 1) for payment within 10 Days and 5% Settlement Discount (Rate 2) for payment within 15 Days.
Before 01/04/2015, the VAT Charge would be £18,000 (£100,000 – 10% * 20%) and the treasury would expect £18,000 to be paid by the customer regardless of whether the early settlement offer was taken up or not. This means that the treasury are not receiving up to £2,000 on VAT due on the invoice if the early settlement offer is not taken up.
On and after 01/04/2015, the initial VAT Charge would be £20,000 (£100,000 * 20%) regardless and the treasury would expect £20,000 to be paid the customer if the early settlement offer was not taken. If full payment was made within the terms of the first settlement rate i.e. within 10 days of the Invoice date, the treasury would expect £18,000 to be paid by the consumer (£100,000 – 10% * 20%) and £19,000 to be paid by the consumer (£100,000 – 5% * 20%) if the full settlement was actioned between days 11-15 of the invoice date.
HMRC have not mandated the need to issue a Credit Note to deal with the PPD adjustment although in Opera 3 and Opera II this must take place to deal with the required update of the VAT Return. It will be necessary for the purchase ledger clerk to have an understanding of whether the supplier is expected to confirm the VAT Adjustment required via a Credit Note. This may cause operative issues as the user may wish to pay the invoice to take advantage of the PPD offered but is not aware of the VAT adjustment required. They will have to gain confirmation of the adjustment required and it’s Supplier Reference before raising the Purchase Credit Note in order to allocate and close down the transaction.
The calculation is the same as detailed in the Sales Ledger.
From 1 April 2015, users will not be able to process transactions that generate discount transactions through the Authorise Cheques or Authorise BACS routines – if payments with discounts are to be made for Suppliers offering PPD, they must be processed through the Payments form in Purchase Processing.
Future changes will deliver process improvements
The development team will be adding further PPD functionality to streamline and improve the process during Q2 2015*, so less manual intervention is required by the user.
Opera 3 and Opera II will be enhanced further so that the discount can be taken from Suppliers using the Purchase Payment functionality. This is to allow processing of invoices that generate discount transactions when using Suggested Payments Report, Authorise Cheques and Authorise BACS and to automatically deal with the VAT reduction on the invoices removing the manual intervention.