Require additional information or interested in accepting card payments? Don't hesitate to get in touch. see more
Wednesday 22nd April 2015
The UK Government recently announced that the current VAT rate would be decreased from 17.5% to 15.0%. This affects most merchants, and we have therefore produced a list of frequently asked questions to provide more information on this matter.
Following the recent Pre-Budget Report the UK Government decided to decrease the VAT rate from 17.5% to 15.0%.
When does this come into effect?
The 15.0% VAT rate comes into effect Monday 1 December 2008.
When merchants accept purchasing/commercial cards, enhanced data is the additional information that merchants can capture when they have a Dione Xchequer terminal. It includes things like VAT, customer invoice numbers and commodity codes.
A purchasing card is a Visa or MasterCard credit card, used by government and business staff to purchase on behalf of their employer.
The card looks the same as all other credit cards, but it may have 'purchasing card' written on it. If you take payment over the phone, the terminal knows the card is a purchasing card by the first 6 numbers on the card, and will prompt for VAT data automatically.
The card is capable of collecting more information than the standard sale amount including VAT detail, if any, and customer reference numbers. Companies use this information to track the spending of staff, and use the electronic reports delivered via the terminal to claim VAT without the need for paperwork
What you need to do if you take Purchasing Card transactions?
In line with the reduction in VAT Rate from 17.5% to 15.0% to come into effect on 1 December 2008, your card processing facilities require a configuration change. All transactions processed from Monday, 1 December 2008 must be charged at the new VAT rate.
I don't take purchasing card transactions, why do I have to do this?
You may have this machine for different reasons, other than for enhanced data. If you have a Dione Xchequer, then your machine still needs to be updated, whether you need the service or not, it is included in the programming of your terminal. If you don't do the download, your machine will continue to work normally, and provided it remains connected to a direct phone line at all times, the update will happen automatically over the next couple of weeks.
What you need to do if you rent a Streamline-issued Dione Xchequer Terminal?
The terminal is programmed to recognise Visa and MasterCard Purchasing Cards when presented for payment by corporate or government customers. The terminal will prompt for additional data, including gross, net and VAT information, when processing these cards.
Prior to processing any card payments on Monday, 1 December 2008, please swipe the supervisor card and then press number 4 on the keypad ("Call TMS" option) for the terminal to dial out to collect the appropriate software update. Once complete, you may recommence use of your terminal as usual.
What you need to do if you use a terminal NOT provided by Streamline?
If you are not using a terminal provided by Streamline, but have software or terminal hardware provided by a third party, please contact your provider to confirm what you need to do to effect the VAT rate change on your systems by Monday, 1 December 2008.
Please also work with your customers to ensure any outstanding service fees are collected by Sunday, 30 November 2008, where appropriate, to avoid the need to re-calculate.
What changes will be seen on my invoices?
For invoices received by merchants with bank owned terminals, they will see the change in rate shown under the 'VAT analysis' section on the first page of their invoice.
Why do I have to undertake a download on my terminal?
The terminal holds information on UK VAT Rates. As the new VAT rate must be in place on 1 December 2008, the change can only be made on the terminal at that time.
Will the terminal still work after the download?
Yes. The terminal will continue to process transactions in exactly the same way as it always has.
Do I need to process transactions differently after the download?
No. You will simply see the VAT rate 17.5% has changed to 15.0%.
How do I turn off/skip the VAT data when processing a purchasing card transaction?
If you have a Dione Xchequer terminal the VAT data is part of the functionality of the terminal. If you no longer wish to capture this 'enhanced data' you should switch to a standard terminal type.
What will happen if I do not do the download?
The terminal will continue to take card transactions normally. However if you accept a purchasing card, it will only allow the transaction to process at 17.5% VAT. From the Monday, 1 December 2008 this is an incorrect VAT rate for any purchasing card transaction.
Please note that merchants are solely responsible for the correct accounting of VAT - not the bank, or the cardholders.
What if I have a customer invoices from November that are 17.5% VAT rated - how should they process them?
The Purchasing Card processing rules state that the 'Tax Point' or relevant VAT charging date for purchasing card transaction on their VAT capable terminal, is the date the transaction is processed, regardless of the date the cardholder purchased the goods or services. As purchasing card processing REPLACES manual invoicing; you should not be issuing a VAT valid invoice before taking Purchasing Card payment.
Any further queries could also be directed to a tax professional.
What happens to transactions prior to the 1st December which need to be refunded?
In circumstances where a refund is required for a transaction which took place prior to the 1st December the original VAT amount (17.5%) should really be credited. It is acknowledged that systems constraints may prevent this (e.g. because terminal/systems can only hold a single value) meaning that credit note can only be processed at the new lower rate. It is understood that HMRC are planning to handle transitional issues with a light touch and are therefore unlikely to object to what is likely to be short term transitional issue. Merchants may find that some cardholders may insist on receiving the difference, in this event the recommendation received is that this should be handled as a standalone "VAT only" credit note (either as a Purchasing Card credit transaction or otherwise).
For more detail please consult either your financial advisor or UK Customs and Excise VAT (VAT Helpline 0845-0109000).
I don't take purchasing card transactions, why do I have to do this?
You may have this machine for different reasons, other than for enhanced data. If you have a Dione Xchequer, then your machine still needs to be updated, whether you need the service or not, it is included in the programming of your terminal. If you don't do the download, your machine will continue to work normally, and provided it remains connected to a direct phone line at all times, the update will happen automatically over the next couple of weeks.
Please note the information below is for guidance only and is not intended to replace professional advice. We recommend that you consult with your local VAT office, tax or legal advisor before changing your purchasing card processing procedures. At all times, you will be responsible for ensuring that VAT is properly brought to account, where applicable, on supplies made to your customers.
All Purchasing Card Payments must be processed at the New VAT rate from 1 December 2008
Any invoice issued with a date of 1 December 2008 onward must include the new VAT rate, regardless of the period in which the product or service was provided. Any invoice paid by Visa Purchasing Card using VAT-capable software or terminal facilities, should be charged at the VAT rate applicable on the day of transaction processing.
Please review the Purchasing Card VAT guidance detailed below:
The tax point is the transaction date as shown on the VAT reports produced by the (Card) Issuing Bank. This is the time your transaction, following authorisation, is passed for clearance and settlement. This is therefore the date on which you must account for the VAT to the Revenue Commission.
You must not mail a conventional tax invoice to your customer. However, the Revenue Commission may request a conventional tax invoice for inspection in order to check your VAT accounting records. You will therefore, need to be able to produce a tax invoice upon request.
If your customer requests a conventional tax invoice, the invoice must be endorsed 'Paid by Purchasing Card - Supplementary VAT Invoice'
If your customer decides to pay using a purchasing card after you have issued a conventional tax invoice, you must issue a credit note to cancel the original transaction (and send this document to your customer) before processing the payment as a Purchasing Card Transaction.
VAT guidance contained in this correspondence is distributed on the express understanding that while the information is believed to be reliable, it has not been independently verified by us. We make no representation or warranty (express or implied) of any nature, nor do we accept any responsibility or liability of any kind, with respect to the accuracy or completeness of the information on this document. This shall not, however, restrict or exclude or limit any duty or liability to a person under any applicable laws or regulations of any jurisdiction, which may not lawfully be disclaimed.
