The HMRC introduced new rules around how VAT is calculated for settlement discounts. These rules come into effect on 1st April 2015. What facilities have been introduced to QuickFile to handle this?
This relates to Prompt Payment Discounts (PPDs). You can read the text here:
This measure is being announced for the first time in Budget 2014.
HM Revenue & Customs (HMRC) has until now interpreted UK legislation to allow suppliers
to account for VAT on the discounted price offered for prompt payment even when that
discount is not taken up. This interpretation is to be changed to bring it in to line with the
Principal VAT Directive (PVD) which requires VAT to be accounted for on the consideration
actually received. The existing UK legislation may be interpreted as being in line with the
PVD but has a degree of ambiguity so it will be amended to provide clarity on the VAT
treatment of PPDs.
Historically PPDs have mainly been offered business to business (B2B) and recipients have
generally been entitled to recover any VAT charged. PPDs are increasingly being offered to
final consumers (B2C) who cannot recover the VAT charged. In particular, HMRC have
identified several instances of suppliers of B2C services offering PPDs in the
telecommunication and broadcasting sectors. Under the existing interpretation this results in
a tax loss where PPDs are not taken up
As this is more of a reporting requirement, I don’t believe any changes would need to be made here. We don’t explicitly support automated PPDs, so whatever is on your VAT invoice is what will get declare.
Sorry Glen can you clarify for me then how I show the discount on a supplier invoice? Do I include vat as part of the discount or do I leave the vat at 0.00 and just allow the figure discounted to come off the total invoice figure?
Whatever VAT you paid to the supplier (NET of any discounts) is what should go on your purchase invoice. Any prompt payment discount will typically have a VAT element, so you either enter your invoice as a single line with the net amount, or you add an additional negative line with the same VAT rate applied.
Over the course of a month I input supplier invoices on the system with the settlement discount line of a minus figure to show the correct value of in invoice. This works well if when the month is up I can pay in full and take the discount. What do I do if I am late paying and have to pay the full amount of the invoice? Do I have to go through each invoice again and remove the discount line or is there a better way to handle settlement discount?
I’m afraid that would be the case yes, there is no automatic handling of early settlement discount. The alternative may be to hold off creating any purchase invoices at all, and then just tag the payment made from the bank, which will create the backing invoice for you at the correct amount.