VAT: Settlement Discounts and Output Value

VAT: Settlement Discounts and Output Value

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Hi

Apologies if this has been asked before, but it's been awhile since I've had to deal with early settlement discounts.

I comfortable with the fact that VAT will always be calculated and reported based on the discounted value, but what value should be included in the VAT return?

E.g.: £100 goods, 10% early settlement discount, therefore VAT calculated on £90 = £18. Invoice gross = £118 But should the value of outputs on the VAT return be £100 or £90.

I have spoken to HMRC on this in the past, but the person I was speaking to wasn't quite sure and had to decide during the conversation.

Thanks

Neil

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Euan's picture
By Euan MacLennan
02nd Oct 2014 18:19

Before or after 1 April 2015?

Under the current rules, your calculation is correct, but it is only a method of calculating VAT, so the output tax in Box 1 is £18, but the outputs in Box 5 remain at £100.

However, s.108 FA 2014 changes the rules from 1st April 2015 (or from 1st May 2014 in respect of B2C supplies of telecom and broadcasting services).  VAT will have to be calculated on the full price of the goods - £20 on £100 - and then, if the customer avails themselves of the prompt payment discount, the supplier will have to issue a VAT-only credit note for £2 (negative entry in Box 1) or cancel the original full-price invoice and issue a revised invoice for £100 + £18 VAT.

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