Revenue e-brief 55/2014: Adjustment for input VAT on unpaid invoices – S62A VATCA 2010

Friday, May 29, 2015

by Nick Ryan

Many of you will be aware of this from the announcement made in July 2014 and the addition it made to the Bad debt relief provisions already in place which allowed the supplier to make an appropriate adjustment for VAT declared on unpaid invoices.
Revenue’s E-brief announced extensions to this provision whereby the person in receipt of the supply has to make an adjustment for VAT deducted against a supply where that supply has not been paid. This adjustment has to be made within 6 months of the end of the taxable period the supply was accounted for and became effective for supplies received from January 2014.
Revenue’s instructions for the management of this adjustment are contained in Chapter 12 of the Value-Added Tax manual and cover two interesting points.
Firstly there is the reference to reasonable grounds for not adjusting which confirms that there is scope though with limitations. The examples cited of either lengthy credit terms for arms length transactions or a dispute over the fee seem fair enough though there does need to be some clarity on what is meant by “dispute”. I am experiencing difficulty in identifying other examples other than the inability to pay; which Revenue confirm as not acceptable grounds.
The other point is the process of disclosure and Revenue’s three scenarios. I am not convinced that a person is going to make a written submission to Revenue to highlight the fact that they have reclaimed VAT on a supply not paid for and provide a case to support their right to do so knowing, looking at the “reasonable grounds” section, that their basis for argument is pretty limited.
Also the fact there is reference to such disclosures being made by the person’s advisers/agent is placing the agent in a very difficult position. If Revenue is the body to police the tax then police it but to expect the agent to do so is further eroding a confidential client relationship. What if the book keeper finds a number of invoices not paid by their client when preparing the VAT Return, do they have to make a note of these and check during the next period if they have been paid? Is this going to present awkward moments for the accountable person’s agents in both completing routine accounting exercises and in their client relationship? If the agent discloses this does this trigger a Revenue audit and, if so, how does this impact on the unprompted disclosure facility?
The reference by Revenue to identifying a non adjustment either by an intervention on the accountable person or the other person involved in the transaction could lead to some interesting times whereby the supplier, if not paid within 30 days, could write to Revenue to “inform” them of a possible non adjustment.
Although I am in agreement that there should be some process in place to prevent business’ from reclaiming input tax when the supply received has not been paid, I have major concerns over Revenue’s approach in extending the bad debt relief provisions in this way as it is further turning the accountable persons’ agents into Revenue’s policemen.
I would be interested to hear from any advisers or businesses on this especially those who have made disclosures for non adjustments. To discuss this or ask a question then please contact Nicholas Ryan at or +353 238838181

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