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VAT & Settlement Discount

We offer settlement discount to some of our larger customers of up to 2.5%. The VAT is calculated after taking the settlment discount into account i.e.

Net 100.00
VAT 17.06 (100 - 2.5% x 17.5%)
Total 117.06

What should I show as the value my output £100.00 or £97.50?

Martyn Shiner


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By NeilW
01st Feb 2005 22:25

VAT Guide 3.1
"Discounts for prompt payment

If you offer a discount on condition that the customer pays within a specified time, the tax value [of the invoice] is based on the discounted amount even if the customer does not take up your offer."

In other words the VAT man treats the discounted value as the value of the invoice, and the discount as a surcharge for late payers. And as we all know finance charges are exempt from VAT.


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04th Feb 2005 15:55

The full amount.
The £100 should still be shown on box 6 of the return and box 6 is not just for taxable sales.

The point is fairly academic anyway. As long as the box is in the right ball park there is very little chance that a Customs officer would do anything about small differences.


Paul Taylor
VATease - VAT Advice

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