VAT when customer imposes their own early payment discount
I have a client who makes supplies to a large company.
The customer has recently written to my client to say that they have changed their terms and conditions and will deduct an early payment discount varying from 5 - 3% of the net invoice amount dependent upon when they make payment. This is a customer imposed early payment discount, not one which my client has offered. They have no choice but to suffer this discount or cease trading with the customer.
E.g. For an invoice showing a net invoice amount of £1000 and VAT £200 the customer deducts 5% of the net amount, i.e. £50, and therefore pays £950 plus the full VAT amount of £200 = £1,150.
If my client had offered this discount in the first place the VAT paid would have been calculated on the discounted amount and disclosed correctly on the invoice.
However, in the above instance how is the discount treated for VAT purposes?
My client does not know what discount will be applied, as it is dependent upon when the customer decides to pay the invoice, so the invoice cannot show the VAT on the discounted element.
Therefore is the VAT £200, despite this then being a rate in excess of 20%, and my client suffers the full cost of the fact that the customer has applied its own discount whilst HMRC doesn't lose out. Or can you treat the discount as an underpayment (or bad debt) and so calculate the VAT to be paid to HMRC as 1/6 of the total payment made, i.e. net value £958.33 and VAT £191.67.
Any advice would be most appreciated.
- Gift or Capital Gain? 278 8
- Reversing out RTI 57 3
- Capital Gain? 389 10
- Sage instant bank rec - is it possible to clear past transactions and reconcile from a given month? 263 6
- BrightPay 601 18
- Classic cars investment 231 7
- Are Court and tribunal Judges honest/commit fruad ? 193 3
- Client charged VAT by US supplier 313 7
- What are CIS subcontractor clients worth to you ? 307 7
- New Company - Corp Tax Period 258 9
- Abandoning accountancy membership in order to operate as a sole trader 812 21
- Fees for dealing with auto-enrolment 243 2
- H&W company 202 3
- VAT on sale of Vehicle 173 3
- tax teatment of index linked mortgage repayment 165 2
- How much?? (ACCA rules on practice insurance) 138 1
- Does anyone use a cloud based payroll software 799 32
- VAT silly question 2,397 56
- Are sheepdog winnings taxable? 1,087 10
- Federation Accounts 364 10
- Benchmarking 489
- Possible Partnership? 432
- Lunatics in charge of the asylum - Bluestone 410
- Tax and accounting treatment on long lease granted from freehold 409
- Old Books for a 'NON' Client 348
- Purchase of property freehold - capitalisation of costs 208
- Growing Limited Company concerned about assets if something goes wrong 206
- Clubs and Taxable Income 194
- Income tax on foreign dividends 189
- Subsistence and hotel expenses 184