One of my clients has received a letter from a supplier detailing how they will be handling the changes to how VAT is dealt with on settlement or prompt payment discount.
I use Sage for the bookkeeping and currently enter the purchase invoice as it is received, manually amending the VAT on the invoice and then adjusting the balance due when payment is made by using the discount column on the supplier payment screen. From the 1st of April the invoices received from suppliers will show the VAT without the discount and all VAT adjustments will be made when the invoice is paid and the discount is taken.
I would appreciate it if people could suggest how best to account for this in Sage. Should I raise a credit note for the discount and allocate it to a nominal code for discounts and adjusting the VAT at the same time or would it be better to use the discount box on the supplier payments screen but increase the discount taken by 20% to allow for the VAT?
Your thoughts make sense and remove an administrative nightmare but in Kelly's case the supplier is charging (say) £100 + £20 then adjusting it to £95 + £19 if the discount is taken.
Unless Sage come up with a solution the only thing I can suggest is either correct the invoice to read £95 + £19 or raise a credit note for £5 + VAT
Hi Kelly
You can't increase the discount to £6 because you would then be claiming £20 VAT instead of £19.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
In the case of supplier invoicing, is it not a case of processing the VAT documentation received - exactly as received? The "adjusting it to £95 + £19 if the discount is taken" would need to be supported by a credit note received from the supplier. Again, process exactly as received from the supplier.
You are correct in noting that my comments relate to the processing of prompt payment discounts on sales from the supplier's point of view.
