Fixed monthly direct debit

Question

Should a Council agree to fixed direct debit payments for services?  I see that the NALC model financial regulations only include variable direct debit payments - but presumably a Council could agree to allow fixed direct debits to access cheaper deals from suppliers?  I think may cause potential issues with auditing of the supplier accounts, monthly reporting to members of committed expenditure and possibly with VAT reclaims.  It would be good to get people's views.

Answer 1

I suspect that the fact that the model regs specifies variable payments is significant, but I can't find a legislative reference. There is a logic to this, of course, as a variable direct debit is a payment for supplies received, whereas a fixed payment is not. I've never encountered a supplier offering a greater discount for a fixed DD than a variable. The discount is usually for payment by DD, as opposed to invoicing.

Answer 2

Fixed Direct Debits are Variable Direct Debits by another name (Take it from someone who used to set them up, and had to explain this at least twice a day to customers!)

We have FDD's and should the need arise the other party can give us 14 days notice and up or lower them.  The only difference is that they don't vary the amount that often, similar to the way you pay your home energy bills.

Only Standing Orders are truly are fixed, as only you can vary the amount

Comments

Sorry I don't agree.  With Variable Direct Debits you pay against an invoice setting out what you've used and the associated VAT amount.  With Fixed Direct Debits you pay an agreed regular amount which does not match the usage invoice;  the VAT associated with the transaction has to be accounted and reported differently.  This is not significant for a domestic user who is not reclaiming the VAT but is more complex for a council registered for VAT.  I have experience of a Council getting very confused with its VAT reclaim due to fixed DD.  Councillors couldn't trust the reports they saw.

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I'm sorry you don't agree, but I can assure you that is what they are. I know as I introduced them nationally for the national company I used to work for before retiring, and, yes that did include multiple councils.

The difference between an FDD and a VDD is that with an FDD the amount will always remain the same until you are notified in advance of the change, but this normally happens once or twice a year.  With a VDD the amount will always remain the same until you are notified in advance of the change, but this can change every month.

No matter what the usage may be, until there is an invoice there is no liability for any VAT, nor can any determination be made on assumed usage be allowed under HMRC VAT regulations.

As for reclaiming VAT, there should not be an issue as it can only be based on the VAT paid, which is specified either on a monthly Invoice or any invoice covering any other period of time.  If any person or organisation is basing it on usage, they will ultimately fall foul of VAT regulations, especially if there is a change in VAT rates

FYI I was a CFO of a rather well known service provider.

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Thanks.  I do understand the concepts.  The key thing for me is the disparity between payments and invoices and the reconciliation between the two.  I'm talking from experience of how FDD is implemented in parish councils.  You may think it's straightforward but I've seen council staff, with a limited understanding of accounting and a very basic accounting system, asked to report on VAT and getting it seriously messed up due to FDD.  And then making a mess of the VAT reclaim process.  When pressed our clerk told me "you can't expect me to be an expert on VAT".

More interesting to know, with your experience, would be why a council would choose FDD over VDD.  And why would NALC specify VDD (rather than FDD) in their FR guidance.