Time is up on prompt payment discount

The Revenue and Customs Brief 49 (2014) provides guidance on what to do when you issue or receive a VAT invoice offering a Prompt Payment Discount on or after 1 April 2015. Under the current legislation, suppliers offering such discounts were able to show and account for the VAT on the discounted value (regardless of whether the prompt payment discount was taken up). Customers could only reclaim the VAT on the discounted value (i.e. as per shown on the invoice), regardless of whether they had paid the undiscounted amount.

However, from 1 April 2015, suppliers must account for VAT on the amount actually received and suppliers may reclaim the VAT based upon the amount actually paid to the supplier.

More specific guidance is contained in the aforementioned Brief for both suppliers and customers, on what must be done if a customer subsequently takes up the prompt payment discount.