Civil Engineering Reference
In-Depth Information
in section 6 VATA 1994 (see Section 19.1.13) do not apply, and instead a tax point
occurs on the earlier of receipt of payment or the issue of a tax invoice.
In general, where a contract contains stage payment terms, it is desirable for an
authenticated receipts payment mechanism to be implemented so that the contrac-
tor only becomes liable to account for VAT on the amount of the payment actually
received, rather than the amount of payment requested.
19.1.16 Authenticated receipts
The authenticated receipts procedure may only be used in conjunction with a stage
paymentcontract.Itmustnotbeusedwhenacontractormakesasupplyunder
a single payment contract. The procedure may also only be used if both parties
agree to it.
Under the authenticated receipts procedure, the contractor submits a request for
payment to the employer. When the employer agrees the amount of the payment due,
it prepares a receipt for the services received and provides that receipt, together with
the payment for those services, to the contractor. The contractor then authenticates
thereceiptandreturnsittotheemployer.hecontractormustnotissueaVATinvoice.
The tax point in relation to an authenticated receipt arises at the time of payment
by the employer, not upon the issue of the authenticated receipt.
The benefit to the contractor of the authenticated receipts process is that the con-
tractor does not need to account for VAT until payment has been received and practi-
cal issues surrounding non-payment of VAT invoices and bad debt relief claims which
couldotherwiseariseareavoided.
From the employer's point of view, the use of authenticated receipts allows input
VAT to be reclaimed in the VAT period in which payment is made. There is no need
for the employer to wait for the authenticated receipt before reclaiming the input VAT
(though the employer must obtain the authenticated receipt from the contractor and
keep a copy of it with its VAT records in order to support the input VAT claim).
The fact that the employer may have to pursue a contractor for an authenticated
receipt may make the use of the authenticated receipts procedure unattractive to some
employers.
If the parties wish to use the authenticated receipts procedure, then the building
contract should be amended accordingly where appropriate.
19.1.17 Self-billing arrangements
The self-billing procedure can be applied to both single and staged payment con-
tracts, but the procedure is of most use where there are regular supplies and pay-
ments between parties. It is often used in relation to payments from a contractor to a
sub-contractor.
In a self-billing situation the customer prepares the supplier's invoice and then
forwards that invoice to the supplier with payment. Further information regarding
the operation of self-billing arrangements can be found in HMRC Notice 70/62,
Self-Billing
.
