Recording VAT on Prompt Payment Discounts on Purchases for United Kingdom
Changes to United Kingdom legislation on prompt payment discounts require VAT to be charged on the full invoice price for supplies made on or after April 1, 2015.
If your vendor offers you a prompt payment discount and you take it after the invoice is issued, you must do the following:
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Upon receiving the original invoice, enter a bill that shows the VAT based on the full price.
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When making the bill payment, deduct the discount amount (net and VAT) from the full price.
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Upon receiving the credit memo from the vendor, adjust your accounting records to reflect the reduced price, reduce any VAT input claimed, and balance accounts payable