Clause 22 - Disallowance of input tax where consideration not paid
Finance Bill
10:45 am
Mr Paul Boateng (Financial Secretary, HM Treasury; Brent South, Labour)
This has been a useful debate, because it is important that we should constantly keep under review ways of reducing the burden on small and medium-sized businesses, in relation to paperwork and time engaged in dealing with VAT regulations and collection. Anything that clarifies thinking on that or takes forward that cause is to be welcomed, and I am glad that the Committee has, overall, warmly welcomed the clause. It will remove what is currently an onerous requirement: the need for a business to contact a debtor by post to inform him that it has made a claim for VAT bad debt relief. The clause has been welcomed by business.
I can assure the hon. Member for Fareham that the particular tax concession to which he referred will continue to operate. I was probed on the Government's thinking about the six-month period and asked whether it should not be six months from the invoice date. That has a superficial attraction, but we must be careful that, in dealing with one issue, we
do not create other problems for small and medium-sized businesses. Our judgment sought to reflect the current flexibility in terms of the invoice date and the payment date. We did not want to tie the provision for one to that for the other; we wanted to retain the flexibility. That is why we concluded that there should be a clause whose effect would be to relieve suppliers making a claim for VAT bad debt relief of the need to issue the notification letter to their debtor customer. As part of the change, the debtor is required to repay any input tax claimed on supplies if more than six months have elapsed since payment became due. That was felt to be necessary so that debtors could no longer rely on the receipt of notification letters to inform them that their suppliers had claimed for bad debt relief. That was our thinking.