Discount for early payment

[NotAllThere]

I've agreed a discount for early payment with one of my clients. Let's say that on an invoice of £1000, I'll grant a 2% discount if paid within 7 days.

How do you handle the VAT? And what should the invoice show?

I'm on fixed rate VAT.

( My accountant's on holiday for a couple of weeks. Obviously, when he gets back, I'll ask - but I was just kind of wondering ).

[tim123]

you calculate the VAT applicable on the actual amount paid

HTH

tim

[VectraMan]

You could always apply the discount to the next invoice. That way your invoices are always right. Not sure what you do at the end though.

[ASB]

Check with your accountant but the output tax is based on the discounted value of goods/services. If they don't earn the discount the tax amount doesn't change.

From HMRC

http://customs.hmrc.gov.uk/channelsP...596#P647_52196

[NotAllThere]

Check with your accountant but the output tax is based on the discounted value of goods/services. If they don't earn the discount the tax amount doesn't change.

From HMRC

http://customs.hmrc.gov.uk/channelsP...596#P647_52196

Doesn't that open up to a collusional fraud, whereby my clients always pay late, and therefore pay less vat? ( assuming they aren't VAT registered )

[max]

Doesn't that open up to a collusional fraud, whereby my clients always pay late, and therefore pay less vat? ( assuming they aren't VAT registered )

Yes..that is correct

[ASB]

Doesn't that open up to a collusional fraud, whereby my clients always pay late, and therefore pay less vat? ( assuming they aren't VAT registered )

They are not my rules - but yes that is a fairly obvious flaw.

Twenty five odd years ago when I produced an accounting system the rules were different. The tax was calculated on the sale price of the goods period. The way to offer settlement discounts was to issue a pro-forma for the discounted amount and then either issue a real invoice for the discounted amount if paid in time or a invoice in the full amount if not paid on time.

Whether this is still a valid thing to do I have no idea - but it was always next to impossible to get people to pay on pro-formas anyway.