Prompt Payment Discounts – new VAT rules

Close-up picture of an invoice

Changes to UK legislation relating to prompt payment discounts will take effect in relation to supplies made on or after 1 April 2015. From that date, the way many businesses account for VAT when offering prompt payment discounts will change.

Currently businesses can issue invoices that give details of the amount of the prompt payment discount and its terms and show the VAT due calculated on the discounted price. If the discount is not taken up HMRC has not required businesses to alter the amount of VAT invoiced and accounted for.

After the change businesses must account for VAT on the consideration they actually recieve.

HMRC are currently consulting on the implementation of this legislation and the consultation ends on 9th September.

In many ways its surprising that it hasn’t always been the case that you pay VAT on the consideration!