Indirect Tax Early Settlement discount/PPD calculations of VAT on invoices...

SteveMerrifield

Hi,

Self-studying and just need a second head on this...

Am I right in thinking that since 2015 that where an early settlement discount is offered VAT is calculated and displayed on an invoice on just the amount after any trade discount?

And where terms of early settlement are stated/understood between supplier and customer the customer calculates the early settlement discount and makes payment accordingly?

Or is it still done the where trade discount is deducted, then early settlement is calculated, VAT is calculated from the sum with settlement discount taken off, but then this actual early settlement deduction isn't stated on the invoice and this VAT figure is applied to the sum after the trade discount is taken...

Any help would be great. Exam on Friday

Cheers

Steve

Caroleanne

Trade discount is normally deducted By the supplier and is shown on the invoice, and the invoice would be processed in the normal way.

Early settlement is deducted by the customer, the way this is calculated changed in April 2015.

Example the total balance owing including VAT is 1200 (1000 goods 200 vat) trade discount is 10%

1000 x 10%= £100
1000-100=900+vat (180) payment to supplier is £1080
Discount is 100 + 20 vat = £120

In other words the vat is taken off the settlement discount is calculated and the vat is added back on to both the amount payable and the discount

Hopefully that makes sense, good luck with the exam!

All the best

Carole

SteveMerrifield

Hi Carole,

Thanks for taking the time to answer my question this was helpful--as was all the reading around I did in the night!

Thanks for the luck--I'll take it.

Cheers

Steve