VAT rules are changing for Prompt Payment Discounts.
From 1st April 2015, on issuing a VAT invoice, you will enter the invoice in your accounts and record VAT on the full price.
Your invoice must contain the following information:
1. The terms of the PPD (in particular the time by which the PPD must be made);
2. A statement that the customer can only recover as input tax, the VAT paid to the supplier.
Where a PPD has been offered you will not know whether or not you4 customer has taken the discount until they have paid. You will then have to:
• issue a credit note for the difference (ie the discount); OR
• adjust the output VAT on your VAT return, if you don’t wish to issue a credit note.
Example: you supply goods to the value of £100 but allow your customer a 2.5% discount if they pay within 30 days. Under the current rules VAT is charged on the discounted price of £97.50 not £100. From 1st April, VAT will have to be charged on the full £100 and if a discount is subsequently taken, you will either issue a credit note for the difference or adjust your VAT return.
As always, if you wish to chat through this change to see how it affects you and your record-keeping, do just give us a call.