VAT – Prompt Payment Discounts

VAT – Prompt Payment Discounts

On 22 December 2014 HMRC published Revenue & Customs Brief 49/14: VAT – Prompt Payment Discounts to provide guidance on applying the prompt payment discount rules when they come into effect on 1 April 2015.

The guidance in the Revenue & Customs Brief covers:

  • what a supplier has to do, offering two options:
    • issue a credit note; and
    • without issuing a credit note.
  • what the purchaser has to do depending on how the supplier deals with the PPD.
  • what to do when the PPD is taken after the time limit for it is passed.

This is important information for any business that offers prompt payment discounts because it changes the way in which VAT on prompt payment discounts is handled. The change has been brought about by a realisation that the UK method of allowing the VAT at the lower amount to be accounted for whether the prompt payment discount was taken was out of line with the EU legislation. The new process is more cumbersome. It has to be followed otherwise HMRC will have an excuse to raise assessments, levy penalties, etc.

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