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Be prepared for changes to prompt payment discount

By CreditMan Wednesday, April 15, 2015

From 1 April 2015 the rules surrounding VAT declaration on prompt payment discounts (PPDs) are changing.

PPDs offer a reduction to the price of goods and services between a supplier and customer if the customer pays promptly. This is to encourage customers to pay ahead of the date full payment is due, but after an invoice has been issued.

Under the current rules suppliers offering a PPD are to charge and account for VAT on the discounted price, even if the full price (i.e. the undiscounted amount) is subsequently paid. These means that Customers receiving PPD offers, may only recover as input tax, the VAT stated on the original invoice.

However, under the new rules, due to come into force at the start of next month, suppliers must account for VAT on the amount they actually receive, while customers may recover the amount of VAT that is actually paid to the supplier.

Companies who supply broadcasting and telecommunication services have already had to undergo the change on 1 May 2014. However, the new rules will apply to all other suppliers from April 2015.

Source - Harris Lipman