Changes to VAT Prompt Payment Discounts

Mar 31, 2015


By Lyndsey Hall

From April 1st, businesses who offer their customers a discount for prompt payment must change the format of their VAT invoices.

Currently, suppliers are permitted by law to offer a prompt payment discount (PPD) and show this amount on the invoice before calculating VAT, for example an invoice for £1,000 with a 5% PPD would incur VAT of only £190, not £200. Suppliers are currently advised to assume that customers will take the discount, even if they pay too late to qualify, so only the VAT on the net value after the discount is charged.

But from April 1st, the law is changing; suppliers will have to account for VAT at the actual amount they receive.

The government is worried that some suppliers are taking advantage of current PPD rules, so from April, if the PPD is not taken by the customer, VAT must be paid on the full payment. The exact wording to be used on the invoice if a PPD is offered can be found here.

Do you offer your clients a prompt payment discount? How will this new ruling effect your current processes? Let us know what you think in the Comments, or Facebook and Twitter.

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