The rules regarding VAT on discounts (Early Settlement Discount) is changing from 1 April 2015.
HM Revenue & Customs (HMRC) have estimated this could affect up to 250,000 businesses that currently offer early settlement discounts to their customers. These businesses will need to review their systems and look to revise their paperwork accordingly.
In addition any of these businesses that sell to the general public or non VAT registered businesses or organisations will need to consider the impact on their pricing and profits.
Currently, where businesses offer their customers early settlement discount, VAT is accounted for on the discounted amount irrespective of whether the offer is taken up by the customer.
To avoid any ambiguity as to whether the current approach is in line with the requirement of the Principal VAT Directive going forward it is intended that VAT will be calculated on the actual consideration received.
The change will take effect from 1 April 2015 for the majority of businesses however for supplies of telecommunication and broadcasting services where there is no obligation to provide an invoice the change will take effect from 1 May 2014.
