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The Book-keepers Forum -> VAT, Payroll & Tax -> VAT - Prompt payment discount to be applied to future bill
Post Info TOPIC: VAT - Prompt payment discount to be applied to future bill
Tenshi


Newbie

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Posts: 2
Date:
VAT - Prompt payment discount to be applied to future bill
 

Hoping someone can help on this query.

We have a supplier who invoices us, discounting the VAT and offering a prompt payment discount of 2.5% to be taken from the next invoice. The requirement is to pay the full amount on the current invoice.

However, on the current invoice, they reduce the VAT payable by allocating the discount they'd apply to a future bill on this invoice. I'm not entirely sure this is the correct process, and was hoping that someone could shed some light on this. I know if the prompt payment discount is on the same invoice VAT should be at the discounted amount, but what about if the discount is for a future one? Example of what I'm working with below, just typed in word for word as it appears on the invoice.

Net charges                              £26.39

VAT   @5%                                £1.28

(on charges of £26.39 minus prompt payment discount of £0.66)

Total payable                            £27.67

(If we receive payment by x date, you will receive £0.66 off your next bill)

Are their processes correct for this? I just can't get my head around it at all as it just doesn't seem right. I realise the difference is literally pennies, however we have to work within a tolerance threshold of £0.01 when authorising payment, so this invoice never clears the system.



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leshoward


Veteran Member

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Posts: 86
Date:
 

The guidance on discounts is pretty basic; Notice 700, chapter 7 is the main HMRC information.

If the discount is applied to a later invoice, then the VAT in the original invoice should not, in my opinion, be reduced. The 'value' of the first supply is the first amount. The discount is applied to the subsequent invoice, and any VAT adjusted then.



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KerryB


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Posts: 23
Date:
 

If you pay within the payment terms for discount then I believe the discount should be taken against the invoice in question;

Thus total payable = £27.01 (£25.73 + 1.28 VAT)

One would assume that the company are trying to avoid the extra work (which isn't much!)

 

Regards

Kerry



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www.berrybookkeeping.co.uk
Tenshi


Newbie

Status: Offline
Posts: 2
Date:
 

Thanks for the advice.

I've been of the mindset of Leshoward in thinking that the discounted VAT should be on the following invoice. The company itself are seeing it as KerryB has.

I just want it paid and out the door, but there's no way I can get it through as is, and the supplier in question, a utility company, aren't in the mood to budge. All pretty daft when you think about it though.

Thank you again for your input everyone.

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