A question regarding a client who reduced rated an invoice to a VAT registered customer at 5% rather than 20%. Subsequently HMRC have investigated and found that the reduced rate was applied in error and have raised an assessment for the underpaid VAT.
Can my client now issue a credit note to the customer, reversing the original invoice and issue a new invoice with the correct VAT rat on it at 20%? The result of this would be that the net transaction would show the VAT difference payable by the customer to my client.
This would mean that :
- the customer pays the VAT difference to my client and reclaim it through their next VAT Return. Their VAT return would show £x in input VAT and £x repayable but with no subsequent entry in box 7.
- my client does not include this transaction in their VAT return as the VAT amount has been paid to HMRC through the VAT assessment.
Is this the correct way to go about this?
Thanks
