It is common practice to amalgamate Payment Claims and Tax Invoices into one document. This practice can lead to errors, may jeopardise your entitlement to a payment when you need it and creates unnecessary extra paperwork.
Payment Claims and Tax Invoices are similar business documents with different compliance functions. A Payment Claim must comply with the requirements of the BCIPA (Payment's Act) and a Tax Invoice complies with taxation, particularly GST requirements.
By its nature, a Payment Claim is open to review and agreement. The contractor makes a payment claim that the respondent is required to either accept, amend or reject. They either agree on the claimed amount, the scheduled amount or they submit to the adjudication process for a decision on the amount.
A Tax invoice, on the other hand, is a much more definitive document and can be much more difficult to unwind. If a payment claim / tax invoice is amended (either by agreement, or by adjudication), it is an adjustment event for GST purposes and it must be "unwound".If the amendment is made in the same Tax (BAS) period as the invoice, this can be done by cancelling the original invoice and re-issuing a new one. The supplier and the recipient should attribute the GST and the input tax credit in accordance with the corrected invoice.If the adjustment is made in the next BAS period and it is a reduction (most likely), an "Adjustment Note" must be issued by the supplier. An Adjustment note must include the Australian Business Number (ABN) of the entity that issues it; be in the approved form; must show prominently the following words - 'Adjustment note' (You may also include the words 'credit' or 'debit', for example, 'credit adjustment note', 'debit adjustment note', 'adjustment credit note' or 'adjustment debit note'); or 'Tax invoice' (You can use these words where the adjustment to the price is shown as a negative or credit amount to the recipient). An adjustment note must also include the following - the name of the supplier or the agent of the supplier; the name of the recipient or the agent of the recipient; the address or ABN of the recipient or the agent of the recipient; the issue date of the adjustment note; The difference between the price of the supply or supplies before the adjustment event and the new price of the supply or supplies; a brief explanation of the reason for the adjustment, for example, 'discount', 'refund', 'rebate', 'return' or a code by which the reason is readily ascertained, such as REF for a refund; and the amount of the adjustment to the GST payable or a statement to the effect that the difference in the price of the taxable supply or supplies includes GST. (GST Ruling 2000/1).Of course, both parties to the transaction must also make the adjustment in you next BAS statement, in accordance with GST Ruling 2000/19. (This is not tax advice. Refer to your accountant or bookkeeper for detailed advice on these processes).
It's a lot of extra work.
This is the reason that some head contractors adopt the "Recipient Created Tax Invoice" regime, where a "reverse" Tax Invoice is created and sent with the payment, thereby making sure that these notices and reversals are not a regular occurrence.
Often tax invoices generated by standard accounting systems, such as MYOB and Quickbooks, do not roll unpaid amounts forward. This puts claimants in a very vulnerable position, because it means that you must either dispute each and every invoice separately, or create a new payment claim when you least want to wait another month.
Tax invoices often do not show sufficient detail or information for your client to serve an informed payment schedule. This can go against the claimant in an adjudication application.
Standard accounting system invoices also often result in the overpayment of GST on retentions, where they apply.
There is another incompatibility. A Payment Claim can be made once per month (unless otherwise agreed) after a "reference date", which is a date nominated in the contract (or the last day of the month).
It is common for the reference date to be mid-way through the month to allow for payments to be processed before the end of the month. This may not be compatible with your invoicing cycle.If you are a supplier of goods, your system may issue a tax invoice with every delivery, or at intervals that are shorter than one month. But under the Payments Act you may not issue more than one Payment Claim for each reference date under the contract, or after the last day of the month if there is no reference date in the contract.
Here is our recommendation for dealing with Payment Claims and Tax Invoices where you are not dealing with a contractor who issues Recipient Created Tax Invoices.
1) If you are a contractor, sub-contractor, consultant who is invoicing periodically (usually monthly) against a contract price or purchase order,
First send a Payment Claim. The Payment Claim can be sent at any time after the reference date. It is always best to include ALL the work you have done (and claim) on the contract and DEDUCT payments made. This way you do not confuse or lose payments that have been adjusted.
INCLUDE GST in the Payment Claim.
Wait for the PAYMENT SCHEDULE from your customer.If you agree with the Payment Schedule, issue a Tax Invoice for the scheduled amount.
If you decide to apply for an adjudication of your Payment Claim, for any reason, wait until the adjudicators decision and payment before issuing a Tax Invoice.
2) Suppliers operate in different ways, depending on their accounting methods, but there are some typical approaches to billing.
A supplier may offer a fixed "price per unit" quotation for a particular project. It will then generate a tax invoice for every purchase order, based on the contents of the order (with or without a price agreement). Otherwise, invoices are generated with every purchase or order, at the list price.
Invoices are amalgamated at the end of the billing period into a monthly Statement and customers are required to pay the amount of the statement within the terms of the agreement.
We recommend that the your Statement either doubles as your payment claim or is accompanies by a Payment Claim for the same amount.
It is unlikely that suppliers would want to change their tax invoicing arrangements, as described above, and most would have a regular credit note regime. There is also less opportunity than with contractors and sub-contractors to disagree with claimed amounts, so the above recommendations for contractors may not apply, unless adjusting invoices is a regular and burdensome process.
If a supplier's terms are payment on Invoice, the Tax Invoice may double as a Payment Claim, or adopt the contractor's method recommended above. The only proviso is that you may not issue more than one payment claim per payment period (usually monthly).
We do not suggest invoking the Payments Act after you are in trouble. This alerts the recipient to a pending adjudication claim and it extends the collection time quite dramatically.
The payment's Act is primarily a legislated credit management system. We recommend that ALL contractors, sub-contractors, suppliers and consultants invoke the Act as a matter of standard business practice. You are not required to call on adjudication to settle a debt, but when you need to, it can be done very quickly, in as little as 12 business days from the due date for payment and no longer than 15.
The Payment's Act is not invoked by including it in a contract or terms and conditions of business. It is invoked entirely at the discretion of the contractor or supplier of work done in Queensland by the issue of a Payment Claim that includes the details of the work. the amount claimed, AND the words - "This is a payment claim under the Building and construction Industry Payment's Act 2004 (Qld).
Thepowertool online payment claim system facilitates the preparation of payment claims and payment schedules that fully comply with security of payment provisions, saving everyone time and work. It helps to ensure that you get paid on time, every time.
Contact me for more information john@lowry.com.au