RCB/49/14 VAT—prompt payment discounts
Revenue & Customs Brief, Issue 49 22 December 2014
PPD VAT legislation was amended earlier this year. This brief provides guidance on what to do when you raise or receive a VAT invoice offering a PPD from the 1 April 2015 when the change takes effect.
2 Who needs to read this?
Suppliers who offer and customers who receive PPD where an invoice is issued.
A PPD is an offer by a supplier to their customer of a reduction in the price of goods and/or services supplied if the customer pays promptly; that is, after an invoice has been issued and before full payment is due. For example a business may offer a discount of 5 per cent of the full price if payment is made within 14 days of the date of the invoice.
— At present, suppliers making PPD offers are permitted to put on their invoice, and account for, the VAT due on the discounted price, even if the full price (ie the undiscounted amount) is subsequently paid. Customers receiving PPD 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.
Changes were made to UK legislation in the Finance Act 2014 in order to protect the revenue, and put it beyond doubt that UK legislation is aligned with EU legislation. The