Commentary

V3.157 Value—discounts for prompt payment

Part V3 Supplies, acquisitions and imports

V3.157 Value—discounts for prompt payment

V3.157 Value—discounts for prompt payment

Directive 2006/112/EC provides that the 'taxable amount' (ie value) shall not include price reductions by way of discount for early payment1.

UK legislation makes provision for goods or services supplied (note that different rules apply in respect of importations – see V3.302A) on terms allowing a discount for prompt payment. Prior to 1 May 2014 or 1 April 2015 – see below) the consideration was taken as reduced by the discount, whether or not ) payment was made in accordance with those terms2. For the changes applicable from those dates, see below. The following conditions must be met3:

  1.  

    •     the goods or services must be supplied for a consideration in money, and

  2.  

    •     the terms must not include any provision for payment by instalments

In addition, the rate of the discount must be shown on the invoice4.

The UK legislation, prior to the adjustments noted below and having effect from 1 May 2014 or 1 April 2015, has been interpreted as meaning that if, for example, a purchaser is offered a 10% discount on a purchase of £100 if he pays within 30 days, the value of the supply is to be taken as £90 for VAT purposes even if the purchaser pays after the 30-day period and consequently is required to pay £100. However, in Saga Holidays5, the tribunal held that the UK legislation could be interpreted as meaning that the lower value was only available if payment was made in accordance with the prompt payment conditions

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