Having a dispute at the moment, should an early settlement discount be taken from the net figure or the gross figure? There are issues with the VAT rate changing and back dated accounts. If there is any legislation stating a clear answer to this it would be greatly appreciated.
The discount will be taken from the net amount as the VAT would have/ should have been calculated on on the net amount less the discount
This example uses a sales invoice at £100, with an early settlement discount of 2.5% It shows the amount of VAT at old and new rate, and the amount that should be paid if the discount is, or isn't taken. The reclaimable VAT does not change.
£
£
20% VAT
Undiscounted cost
100.00
less 2.5% Discount
-2.50
97.50
17.5 % VAT on discounted amount
17.06
19.44
Amount to pay if discount not taken
117.06
119.44
Amount to pay if discount taken
114.56
116.94
It doesn't matter if there is a rate change, the VAT is calculated on the discounted value of the invoice.
It is covered in VAT700 but can't find the page at the moment.
The only thing that might cause confusion is the VAT rate that should be applied, and will depend on the tax point and when it was created (that was recently covered in another topic)
