Credit and Debit notes: Dealing with problem cases: Scenario 2
Credit note raised by supplier but not issued to the VAT registered customer (i.e. only output VAT adjusted).
Tax liability reduced but no credit note raised.
Supplier failed to issue a document to notify a VAT registered customer of reduction in consideration. Again, you will need to find out the underlying supply position. If there has been a genuine decrease in consideration for the supply, a credit note or document having similar effect must be issued to a VAT registered customer before any adjustment can be made to output tax (see British Telecommunications plc (LON/95/3145)). If the customer is not registered there is no requirement to issue a credit note but you need to check the documentation/records of the supplier in accordance with the GMAC decision. If output tax has been reduced in the absence of such a document, you may assess to recover it.
However, subject to capping, the adjustment will be correct and no assessment action necessary if enquiries reveal that:
- output tax has been adjusted because a supply is cancelled altogether; or
- an invoiced supply did not take place; or
- the VAT on the original invoice was under or over-stated in error.
In these circumstances ensure that the customer has not claimed input tax. If input tax has been claimed the customer should be assessed if they have not made an adjustment