At the beginning of September, additional new VAT rules for 2019 were brought in, following the introduction of Making Tax Digital (MTD) in April. These new changes were made in order to tighten up existing VAT regulations and ensure businesses cannot gain unfair tax advantages – Her Majesty’s Revenue and Customs (HMRC) claims there is evidence that some businesses are doing just this.

The new rules are nothing to worry about for conscientious business owners who aren’t trying to cheat the tax system, but you do need to be clear on the new timings and processes.

What are the new HMRC VAT rules?

HMRC has made an amendment to Regulation 38 of the 1995 VAT Regulations as of the 1st September 2019, which is concerned with output tax and price changes. Specifically, this regulation deals with situations where a business has charged for goods or a service, and has already declared the output tax, but the price then changes. In practice, this is usually due to faulty goods, or a customer being unhappy with a service.

The new rules are as follows:

  • As a supplier, you must issue a credit note to a customer within 14 days of a price change being agreed.
  • VAT must be adjusted in the same VAT period in which the price change takes place.
  • The relevant accounting documents (i.e. the credit or debit note) must include an identifying number, a date of issue of the VAT invoice relating to the change in price, and a description of the goods and services. More information may be required depending on the circumstances.

Why are the new VAT rules coming in?

The new VAT rules regarding output tax and price changes are coming into play to stop businesses gaining an unfair tax advantage. The VAT system in the UK dates back to April 1973, but occasionally it is still necessary to put new rules in place that make taxation fairer for everyone. If there’s the possibility that businesses could be profiting from underhand tax practices, this is a very serious matter and HMRC needs to act. The new system of issuing credit notes and adjusting VAT output will make it much harder for businesses to cheat the VAT system and have non-compliant VAT refund processes.

An example of how the new VAT rules work in practice

To help you understand the new 2019 VAT rules, here is an example of a situation that might occur:

A plumber carries out some work for a customer, which comes to a total of £50,000+VAT. Once the new bathroom suite is installed, the customer notices there is some damage and the plumber agrees that they will reduce the price to account for this. However, the customer has already paid for the installation upfront.

In order to be compliant, the plumber must issue a credit note for the amount refunded, plus VAT. Only then can they reduce the output tax on their VAT return. This prevents the plumber being able to make VAT adjustments for the reduction in price, and putting the lower figure on their VAT return. They could do this without refunding their customer in order to gain an unfair tax advantage.

Proving your VAT output – Making Tax Digital


Earlier this year, Making Tax Digital (MTD) came into force. This mean that businesses now have to keep records and submit information to HMRC digitally, making it easier to maintain accounts and ensure they are fully compliant. If you are a VAT-registered business, then you will no doubt be familiar with MTD and your obligations.

Ensure that you are digitally submitting all the correct VAT information to HMRC via MTD bridging software or MTD-compliant software. Where required, enter the full details of VAT input and output, including credit notes, to ensure your VAT returns and VAT refunds will be correct. Your accountant will be able to support you in this, ensuring you are fully compliant with all MTD processes, rules and regulations.

Getting your head around the new VAT rules

Whilst these changes will not significantly impact businesses in the same way as a major overhaul to legislation (such as MTD), businesses do need to be aware of them. Essentially, these VAT refund rules have been put in place to iron out some issues and make sure regulations can’t be abused, which is a good thing for conscientious business people.

If you need to know more about the new VAT rules and want to make sure you are fully compliant, we are always here to help. We know VAT inside out and can provide any help and support you might need during the process.

If you would like to ask us anything about the changes to the VAT rules, please don’t hesitate to get in touch. Call 020 8468 1087, email  or fill in our contact form and we will get back to you ASAP.