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VAT and Prompt Payment Discounts

23From 1 April 2015 the VAT treatment of invoices that offer a discount for prompt payment changes. If you receive or issue invoices which have the option of a prompt payment discount or prompt settlement discount then read on.

 The rules up till now…

Until now the position has been fairly straight forward. The amount of VAT charged was calculated on the ‘after discount’ net amount, irrespective of whether the discount was taken or not. In other words the VAT amount was fixed, always being based on the discounted net sale.

The new rules…

From 1 April 2015 any invoice you raise must show both sets of figures side by side, clearly showing the net, VAT and gross if the discount is taken up and the net, VAT and gross if the full price is paid.

Likewise if you receive invoices from your supplier after 1 April 2015 with potential prompt payment discounts you need to be sure that the amount of input VAT you reclaim on your VAT Return agrees to the amount you actually. A narrative should also appear on the invoice indicating to the customer that if they pay within the settlement period they should claim only the lower amount of VAT.

Any business affected by these changes needs to amend their systems and invoice templates. We recommend you consult HMRCs guidance at https://www.gov.uk/government/publications/revenue-and-customs-brief-49-2014-vat-prompt-payment-discounts/revenue-and-customs-brief-49-2014-vat-prompt-payment-discounts

Stephen Hill Partnership is a firm of Chartered Accountants who offer a range of services and tax advice. Visit our website or download our App here.

 

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