From 01 April 2015, the process you follow when raising or receiving a VAT invoice including early settlement discount (ESD – sometimes referred to as Prompt Payment Discounts – PPD) will change. The change affects all suppliers who offer and customers who receive early settlement discount where an invoice is issued.

Up to 31 March 2015, suppliers making offers of early settlement discounts are permitted to put on their invoice, and account for, the VAT due on the discounted price, even if the full price (i.e. the undiscounted amount) is subsequently paid. Customers receiving early settlement discount offers may only recover as input tax, the VAT stated on the invoice.

After the change, suppliers must account for VAT on the amount they actually receive and customers may recover the amount of VAT that is actually paid to the supplier. Full details of these changes can be found in the HMRC policy paper ‘Revenue and Customs Brief 49 (2014): VAT – Prompt Payment Discounts, which you can access HERE

These changes will have implications to your accounting software. To find out how this affects you, contact our Sage team via sage@smithcooper.co.uk