assessment wrong?

beancounter

Question 1.7 on the PBKT sample asssessment 1 - Why is it saying that the discount applied is wrong? And on the answer sheet is says the vat is 245... WHY?! The correct vat (20%) of 250 is 50...

Please help me find a way out of my stupidity

Thanks

beancounter

BenA

Hi,

It is due to the settlement discount of 10%. Where there is discount (bulk, trade and early settlement), the discount is deducted from the net value leaving the following equation £250.00*10%=£25.00
£250.00-£25.00=£225.00
£225.00*20%=£45.00

£250.00 Net
£45.00 VAT
£295.00 Gross

I hope this helps.

Remember, if there are also Bulk and Trade discounts they should be deducted before deducting settlement discounts.

SandyHood

Please can you help me?

I thought that BenA's very good point has not been valid since 1st April 2015

This is the HMRC Revenue and Customs Brief 49 (2014): VAT - Prompt Payment Discounts
https://www.gov.uk/government/publications/revenue-and-customs-brief-49-2014-vat-prompt-payment-discounts/revenue-and-customs-brief-49-2014-vat-prompt-payment-discounts

My understanding was that until 1st April 2015 the calculation of VAT was exactly as BenA presented above.
But that since then, the customer is required to pay 20% of the invoiced amount as VAT.

For instance, nowadays the example here would be:
If the customer meets the early settlement criterion
£225.00 + £45.00 VAT = £270.00
If the customer does not meet the early settlement criterion
£250.00 + £50.00 VAT = £300.00

For implications for sage see
http://www.smithcooperit.co.uk/important-changes-early-settlement-discount-legislation/

Have I misunderstood the question?

Yours

Sandy

BenA

Hi Sandy,

I wasn't aware of the change .

After reading the update you are right in what you have said

SandyHood

BenA
I read this thread
http://forums.aat.org.uk/discussion/443060/early-settlement-discount-finance-act-2015#latest

If the contributor is correct. [I have every reason to think he/she is correct] then from the point of passing exams, candidates should continue to make their calculations in the way you described.
But if they go to work they should do it the way I described.

beancounter

Cheers BenA! Cheers Sandy!