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Hi Emme-Lousie
Using very simple figures to illustrate the situation.
Under the current VAT regulations (which change on April 1st) prompt payment discounts are handled as such:
You sell goods worth net £100 and offer a 10% prompt payment discount. As seller your invoice would be:
net £100
VAT would be based on £100 - 10% = £90 giving VAT of £18.00
Your invoice would then be:
goods £100
VAT £18
Total £118.00.
If the purchaser wants to take the 10% discount then they have to take the 10% off the NET value of the invoice and then add on the VAT so they pay:
£100 - £10 + £18 = £108.00
If the purchers chose not to take the discount they would pay the £118.00.
Under the new system it is much easier. The puchaser only pays VAT on what they actually pay so the new invoice would be:
goods £100
VAT £20.00
Total £120.00
If the puchaser wants to take advantage of the prompt payment disocunt they would just take off 10% of the total and pay that so they would pay
£120.00 - £12.00 = £108.00
(for technical completeness its actually £100 - 10% = £90 + VAT of £18.00 = £108.00)
If the purchaser does not want to take advantage of the discount then they pay £120.00.
Overall for VAT registered businesses it makes no difference cost wise as they can claim the VAT back. The only business that lose out are non-VAT registered business who do not take advantage of early payment disocunts as they will be paying slightly more in VAT.
THe new way brings the UK into lione with the rest of Europe in the way that VAT is handled.
Kevin
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