The current position is that where a supplier offers a prompt payment discount (‘PPD’), they are allowed to account for VAT on the discounted price even if the discount is never taken up. From 1st April 2015, VAT will be payable on the consideration actually paid. This is to protect the loss of revenue under the current rules and ensure compliance with EU law. However it is going to increase the administrative burden for both suppliers and customers.
For suppliers, they will have to now account for VAT on the full price at the time of issuing the invoice. If offering a PPD the rate of discount offered must be shown on the invoice. The supplier must decide at the time the invoice is raised which method of accounting to adopt if the PPD is taken up. The first option is to raise a credit note to reflect the reduction in consideration. Read More