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Settlement discount is vatable?

LondinaLondina Experienced MentorMAAT, AAT Licensed Accountant Posts: 814
Situation: a Company invoice to a client £100 + £15 Vat = £115. The Client paid £112.12, he took 2.5% of discount which is £2.87.

My question is: since the company paid VAT £15 to HMRC, can I take back the VAT from the £2.87 discount?

Are discounts vatable? Using SAGE, when I post the payment, there isn't a option to take the VAT out, so make me assuming that it's not allowable.


  • AK002AK002 Font Of All Knowledge Registered Posts: 2,492
    If you are issuing invoices with an option of a settlement discount the VAT you show on the invoice is the VAT on the discounted amount.
  • LondinaLondina Experienced Mentor MAAT, AAT Licensed Accountant Posts: 814
    AK002 wrote: »
    If you are issuing invoices with an option of a settlement discount the VAT you show on the invoice is the VAT on the discounted amount.

    The problem is that the company has not offered any settlement discount, this client just take it when they process a payment (months later after the VAT return is done). Unfortunately the company cannot complain because the client is a big one and can be arrogant by saying "if you dont like it, go somewhere else"...
  • PoodlePoodle Experienced Mentor Registered Posts: 711

    You have to pay the £15 VAT in this situation

    If you are using cash accounting then you could claim bad debt relief immediately on the VAT element of the £2.87. On Sage you would have to raise a dummy credit note to do this since it would mess up your VAT return to try and use the write off facility.

    If you are using the accruals method for VAT then you could use the write off facility and claim relief using the 6 months rule.

    I hate to hear of this type of big boy bullying, loads of it going on at the moment as well as delays in payments to small suppliers way beyond payment terms, basically using them as a bank as opposed to using their own bank.

    Did you ever issue them with terms of credit or a contract, do you let them have a price list that would also show terms, are your terms printed on the invoice that you raise

    You might like to consider not writing off the amounts but leave them as outstanding send them a statement occasionally. That way if you fall out with them you could claim it all back plus interest in the small claims court and you could go back 6 years with this as well I believe.


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