Discounts and VAT - Is your business ready for change?
The government is continuing its crusade to harmonise other UK VAT rules with those applied across the rest of the EU.
One such area of change which businesses must consider includes situations where discounts are applied to invoices for prompt payments and how VAT is charged to customers on these occasions.
The old rules
VAT registered suppliers have traditionally been able to account for VAT on the discounted price offered for prompt payment, even where the discount was not taken up by the customer. This had the effect of providing the supplier with a cash flow advantage.
What is changing?
In future there will be a requirement for VAT to be accounted for on the actual amount received by the supplier. Therefore, if the customer does not take the discount up, the supplier will have to make an adjustment to the amount invoiced in order to correctly account for VAT.
When will this come into force?
For certain supplies of telecommunication and broadcasting services, the changes came into effect from 1 April 2014. However, for the vast majority of VAT registered businesses, this change will not come into force until 1 April 2015.
If you would like more information or would like to discuss your tax affairs in general, please contact our Tax Partner, Chris Barrington on the details below:
telephone: 01942 292505