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.
- VAT on Hire Purchase 157 2
- "Audit Report" 56 1
- IR35 deemed payment and dividends - practical considerations 128 1
- Annual tax investigation cover fee? 464 13
- Coding Notice 225 6
- UK company paying dividend to foreign shareholder 237 6
- New business - journal entries 401 22
- Is CGT roll over relief available for let property 221 3
- Payroll software 643 16
- Statutory accounts, current company address, or one that was correct at EOY? 261 5
- Are there Special Rules for Agencies? 396 10
- 100% Annual investment allowance on luxury cars 731 18
- B2B vat in the EU 185 4
- Samadian effect on self employed student support workers 197 4
- Changes to class 2 NIC's 226 3
- Client RTI Shows payments not his 192 4
- LLP as member of LLP 135 1
- Why should I retain membership? 2,832 48
- Alerting clients versus walking away from clients 509 7
- Vat 305 7
- Auto enrolment excuses 860
- Feedback on accounts production software for IFRS 719
- Add T&Cs to Sales Order in Sage 408
- Social investment tax relief 219
- Digita Hosted Software 213
- Call Centre Data Costs 200
- accounting for this transaction 188
- Buying goods in US and selling them to company in US 171
- Travel costs and contractors 166
- Problems with Sage 50 Payroll v21(2015) 163