Settlement Discount Query - Please Help

mfernott
mfernott Registered Posts: 32 Regular contributor ⭐
Hi Guys

I have an invoice here to pay for £1040 + VAT of £182 - Total = £1222.

There is a note to say if payment is received by 01/02/08 then we can pay a total of £1099.80 which (by my calculation) is £936 + VAT of £163.80.

My question is: I thought they should have shown an original figure of £1040 + VAT of £163.80 as this VAT should be specified whether or not settlement discount is taken, and therefore my instinct is that the invoice is incorrect and that the original total should show £1203.80.

My boss says that as long as we only pay £163.80 in VAT then there is not a problem and we can use this as a valid VAT invoice.

Is this correct?

Thanks.

Comments

  • shaxxa
    shaxxa Registered Posts: 82 Regular contributor ⭐
    Your instinct is correct, the invoice is wrong as the vat should be £163.80.
    Your boss cannot use the invoice as a valid vat invoice if the £163.80 is taken as vat.
    I would return the invoice back to your supplier and request a revised invoice showing the vat with the settlement discount.

    Regards
    Sharon
  • Cullen
    Cullen Registered Posts: 592 Epic contributor 🐘
    I was always told to post the VAT amount as stated on the invoice as it is a government tax and the supplier is acting as the tax collector.
    If you are taking the discount what is wrong with posting:
    Net £917.80, vat £182, total payable £1099.8,
    The supplier tax charged must equal the tax paid by the customer. If the supplier has made an error you could inform him and then post any vat invoice/cr note to amend his error should he send one.
  • mfernott
    mfernott Registered Posts: 32 Regular contributor ⭐
    Because the total figure due under the settlement discount payment is £1099.80 - which is £936 + VAT.

    The VAT payable under the settlement discount is £163.80 which should be shown on the original, non discounted figure, according to what I've been taught, regardless of whether the customer takes the discount or not.

    If we recorded the net figure as you suggest, then our books will be wrong and we will have recorded the purchase at a lower price than was paid, as £163.80 is the correct VAT figure.
  • Cullen
    Cullen Registered Posts: 592 Epic contributor 🐘
    I agree with you on what the correct figures should be, but I was always told to never alter the VAT amount but make any required adjustment to the net, inform the supplier and request an adjusting invoice/credit note.. Shaxxa is right to say to return the invoice and request a correct one and do it right first time. Sometimes time constraints and limitations of the accounting system may have an impact on the way an error is dealt with.
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