Questions and Answers
Prompt Payment Discounts and VAT
I often give my customers prompt payment discounts as an incentive for them to pay me sooner, I find it works well. But I’ve been hearing that the rules about how to calculate the VAT are set to change. Is that true?
VAT is normally accounted for on the price after a prompt payment discount has been applied; irrespective of whether the discount is eventually taken up or not. Prompt payment discounts would normally only occur in business-to-business transactions; where both parties are VAT-registered so the position is VAT-neutral from HMRC's point of view.
However, HMRC believe the rules have been abused by businesses offering prompt payment discounts to end consumers who are obviously not VAT-registered and therefore cannot recover the VAT. A prompt payment discount can therefore offer end consumers a real saving because there’s less VAT for them to pay.
As a result, the rules with regards to prompt payment discounts are set to change and in future, VAT will have to be calculated on the amount actually paid.
This measure already applies for supplies of telecommunication and broadcasting services where there is no obligation to provide a VAT invoice. For all other supplies the measure will have effect for supplies made on and after 1st April 2015.
If you’d like to discuss this further, please get in touch and we will put you in contact with your local TaxAssist Accountant.
Date published 3 Oct 2014
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.Choose the right accounting firm for you
Running your own business can be challenging so why not let TaxAssist Accountants manage your tax, accounting, bookkeeping and payroll needs? If you are not receiving the service you deserve from your accountant, then perhaps it’s time to make the switch?
Local business focus
We specialise in supporting independent businesses and work with 100,000 clients. Each TaxAssist Accountant runs their own business, and are passionate about supporting you.
Come and meet us
We enjoy talking to business owners and self-employed professionals who are looking to get the most out of their accountant. You can visit us at any of our 409 locations, meet with us online through video call software, or talk to us by telephone.
Switching is simple
Changing accountants is easier than you might think. There are no tax implications and you can switch at any time in the year and our team will guide you through the process for a smooth transition.