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Revenue and Customs Brief 49/2014 provides guidance on what to do when a business raises or receives a VAT invoice offering a prompt payment discount from 1 April 2015.
Under new legislation in VATA 1994, sch 6 para 4, suppliers must account from 1 April for VAT on the amount they actually receive and customers may recover the amount of VAT that is actually paid to the supplier.
Revenue and Customs Brief 49/2014 provides guidance on what to do when a business raises or receives a VAT invoice offering a prompt payment discount from 1 April 2015.
Under new legislation in VATA 1994, sch 6 para 4, suppliers must account from 1 April for VAT on the amount they actually receive and customers may recover the amount of VAT that is actually paid to the supplier.
The old rules allowed suppliers offering prompt payment discounts to account for the VAT due on the discounted price, even if the full price was subsequently paid. Customers could only recover as input tax the VAT stated on the invoice.
From April, on issuing a VAT invoice, suppliers will enter the invoice into their accounts, and record the VAT on the full price. If offering a prompt payment discount, suppliers must show the rate of the discount offered on their invoice. Additionally, it might be helpful for invoices to show the discounted price, the VAT on the discounted price and the total amount due if the PPD is taken up.
Where a supplier receives a payment that falls short of the full price but which is not made in accordance with the prompt payment discount terms it cannot be treated as a prompt payment discount. The supplier must account for VAT on the full amount as stated on the invoice. If the amount not paid remains uncollected it will become a bad debt in the normal way. If a price adjustment is agreed later, then adjustment must be made in the normal way.
