How to account for VAT if you're a supplier and accept purchasing cards, or a business that buys goods and services using a purchasing card.
This notice cancels and replaces Notice 701/48 published March 2002.
1.1 What this notice is about
This notice explains how you must account for VAT if you’re a:
- supplier accepting purchasing cards
- business buying goods and services by means of purchasing cards
The notice explains the:
- tax point rules for supplies covered by purchasing card arrangements
- invoicing requirements when using a purchasing card
This notice only covers the VAT requirements of purchasing cards. Banks and card companies issue comprehensive procedural guidance, specific to each particular system, to all suppliers and card users.
Please note, references made in this notice to acceptability for VAT reporting and input tax recovery apply only to purchasing cards which have an associated VAT invoicing capability. Ordinary purchasing, charge and credit cards do not have this capability, and statements or reports from such cards are not acceptable for VAT purposes.
1.2 What’s changed
This notice has been updated to reflect changes in the marketplace since the March 2002 version.
1.3 Force of law
Regulations 13 and 14 of the VAT Regulations 1995, govern the issuing and content of VAT invoices. Parts of this notice have the force of law under those regulations. Paragraphs which have the force of law are indicated by a statement.
2. Corporate purchasing cards
2.1 What a corporate purchasing card is
Corporate purchasing cards (or procurement cards) are more like charge cards than credit cards. They allow commercial organisations to pay for their business to business purchases electronically. Use of the cards can significantly reduce the paperwork associated with the traditional process of corporate purchasing. In the UK, the cards are designed to be fully compatible with VAT accounting requirements.
Suppliers which accept purchasing cards in payment are not required to issue VAT invoices to their customers. Instead, the invoicing is carried out by the customer’s card company, or bank, on the suppliers’ behalf, using transaction information which has been transmitted through the purchasing card system.
Suppliers usually have to be recognised ‘merchants’ of the card issuer to accept one of that issuer’s purchasing cards as a method of payment. But some intermediary service providers (sometimes referred to as third party procurement solutions) now exist. The intermediaries provide a way for suppliers who are not merchants to both:
- be paid through a corporate purchasing card system
- issue invoices through a corporate purchasing card system
For VAT purposes, we usually treat the intermediaries as though they were the bank or the card company.
3. Time of supply (tax point)
3.1 The normal time of supply rules
The time of supply rules establish the time at which a supplier must account for output tax and also govern the time at which the customer is entitled, where appropriate, to recover that tax as input tax.
Under the normal rules it is very often the issue of an invoice which creates the tax point for a supply.
3.2 Why the normal rules present problems when purchasing cards are used
Because the card issuing company or bank issues VAT invoices on the supplier’s behalf, the supplier has no way of knowing when an invoice is issued to individual customers. Usually, the card issuing company or bank will issue monthly invoice reports to suppliers. The supplier will be unable to work out the tax point for each supply accurately from this monthly report. There may well be a mixture of basic tax points and, where the invoice has been issued up to 14 days after the basic tax point, actual tax points.
If the normal tax point rules were applied to purchasing card supplies, the supplier could be faced with a mixture of tax points, depending on when each invoice was issued in relation to the basic tax point.
We’ve accepted that it would help if supplies covered by purchasing card arrangements were subject to a single, easily identifiable tax point. We agreed that a tax point linked to the time at which the supplier keys the transaction details into the purchasing card system (the transmission date) would best achieve this.
3.3 The accommodation tax point
A taxable person may apply for a tax point to be advanced to a time earlier than would otherwise be the case. This is commonly known as an accommodation tax point.
When we direct suppliers to use an accommodation tax point, we allow them to treat the date the details of each transaction are transmitted to the card company, bank or intermediary as the tax point. But this is conditional on the details of all transactions being keyed into the system no later than the basic tax point date. If any transactions are keyed in later than this, the supplier would be accounting for tax late and may become liable to a penalty..
In order to safeguard the interests of all involved, the card issuers want to ensure that all suppliers adopt the accommodation tax point facility. To do this they make it a condition of membership that potential suppliers apply to us for an accommodation tax point. A direction to use an accommodation tax point applies to all such supplies, regardless of the card company or bank involved. So a supplier who already holds a direction because of their participation with another card issuer does not need to apply again. They just need to be able to show their original direction.
In the case of new directions, we’ll accept applications made on a standard form included as part of the supplier’s application to join the purchasing card scheme. The card company or bank will forward the application to us on behalf of the supplier. On receipt, we’ll issue a direction to the supplier and, if the supplier agrees, send a copy to the card company or bank.
4. Invoice requirements
4.1 Purchasing card invoicing process
Where a purchase is made using a purchasing card, the supplier will normally transmit the invoice information, without issuing an actual invoice, to the appropriate card company or bank.
At agreed intervals, the purchaser will receive a VAT invoice report and other reports from the card company or their bank.
This arrangement does not affect the supplier’s responsibility for accounting for output tax on sales, or the purchaser’s responsibility for demonstrating entitlement to deduct input tax.
Some purchasing cards offer 2 levels of invoice detail:
- line item detail (LID) invoices which provide detailed, itemised information on a line by line basis (sometimes referred to as a level 3 invoice)
- simplified VAT invoices which provide less detailed information at a summary level only (sometimes referred to as a level 2 invoice)
The level of detail received by the cardholder is dependent upon the capability of each supplier’s accounting system.
4.2 Line item detail VAT invoice
The following 3 paragraphs have the force of law.
As the invoice report is issued by the card company or bank to the purchaser, the supplier will not know when it is actually issued. But as the date is normally only relevant for tax point purposes (which have been specially provided for, see paragraph 2.3), we have agreed to waive the requirement to show the date of issue contained in regulation 14(1)(c) of the Value Added Tax Regulations 1995.
The invoice report issued to the purchaser must, however, show the transmission date for each transaction, so the purchaser will know the date from which input tax can be claimed. The invoice report is, therefore, acceptable as evidence for input tax recovery, subject to the normal rules governing entitlement.
In order to fulfil the requirements of regulation 31(1)(c) of the Value Added Tax Regulations 1995, suppliers must retain the invoice data transmitted and any invoices from their normal systems which they have produced but not issued.
4.3 Summary VAT invoice
The following 3 paragraphs have the force of law.
Some suppliers don’t have accounting systems capable of transmitting LID invoices but are able to provide summary VAT information. As a general rule, we’ll accept summary VAT invoice reports in support of input tax claims. The summary VAT invoice reports must contain the following information:
- value of the supply
- VAT amount charged
- VAT rate
- time of supply
- description of the goods
- supplier’s name, address and VAT number
- customer’s name and address
If you’re capable of transmitting only summary VAT data you must, for purchasing card transactions, continue to generate VAT invoices at the same time for output tax accounting purposes. However, you may discharge your obligation to issue an invoice where single transactions have a value of not more than £5,000 by transmitting the summary VAT information to your bank or card company.
Where the value of a single transaction exceeds £5,000 you must issue a VAT invoice. A single transaction is the total value of purchases made using a card at any one time, for example from one ‘swipe’ of the card. You must also issue a copy of your normal VAT invoice, for any transaction where the value does not exceed £5,000, if you’re specifically requested to do so by your customer. In such a case the invoice must be clearly endorsed with the words ‘Paid by Purchasing Card - Supplementary VAT invoice’.
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