Invoice Discounts

Early Settlement Discount

Another term for prompt payment discount, offered to encourage customers to settle an invoice early.

Trade Discount

A type of discount offered to customers that work in the trade.

Bulk Discount

A discount provided for the purchase of large quantities of goods.

Prompt Payment Discount (PPD)

A discount offered to customers to encourage them to settle debts earlier than the standard payment terms.

Net Sales Value for VAT calculation

The sales value after any trade or bulk discount has been applied, which serves as the base for charging VAT.

VAT Treatment of Trade Discounts

VAT is charged on the sales value after the trade discount has been deducted.

VAT Treatment of Bulk Discounts

VAT is calculated based on the sales value remaining after the bulk discount is applied.

PPD VAT Rule

VAT must be charged on the full price of the invoice, regardless of whether a prompt payment discount is offered.

PPD Statement Requirement

Invoices offering PPD must clearly state the terms, such as the percentage and the timeframe for deduction.

PPD VAT Reclaim Restriction

If a customer takes a prompt payment discount, they must only reclaim the amount of VAT actually paid to the supplier.

Credit Note for PPD

One method a supplier can use to adjust VAT on the VAT Return if a customer takes an early settlement discount.

Calculation for Net with Trade Discount

Amount - Trade Discount - Net Total

Calculation for VAT with 10% Trade

Discount

Net Total × 20% = VAT Due (Where Net Total is

Gross less 10%).

Adjusting VAT for PPD

Suppliers can either issue a credit note or include a specific statement on the invoice regarding the consideration paid.

Relationship between PPD and Full Price

Unlike trade discounts, PPD does not reduce the VAT base upfront; VAT is initially charged on the full price.

Discount Percentage Calculation

To calculate a 10% Savings

Total=10/100

VAT Invoice Requirement for Discounts

A full VAT invoice must show the rate of any discount applied per item.

Example: 5% Bulk Discount Calculation

On a l 10, 700goodstotal, thediscountis

535(10, 700 × 0.05), making the net value

$10,165.

VAT on $10,165 (post-discount)

10,165 × 20% = $2, 033

PPD Invoice Statement Example

"You must only reclaim the amount of VAT

paid on the consideration made (amount paid)."