when you are sending an invoice with the settlement discount, if the customer doesn't pay within the timescale and is not entitled to he's discount is the Vat still at a discounted rate- I have spoken to my tutor and they said yes, as you are not allowed to re calculate vat is this correct?
Your tutor is correct. Regardless of whether the early settlement discount is taken advantage of, the VAT remains as calculated on the discounted amount.
My first instance on why i thought it couldn't be right is that i thought Hmrc would lose out on the total value, however i have realised that they don't
This because that credit charges are exempt from vat, so vat is only chargable on the actual product, so HMRC are only getting what is chargeable no matter if the discount is taken or not.
hope this helps
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Nick
Nick Craggs FMAAT ACA AAT Distance Learning Manager
