Budget 2014 – VAT: prompt payment discounts

Currently, where businesses offer their customers a prompt payment 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, VAT will be calculated on the actual consideration received.

The new measure will take effect from 1 May 2014 for supplies of telecommunication and broadcasting services where there is no obligation to provide an invoice and from 1 April 2015 for all other supplies.

There will be further consultation before the main implementation on 1 April 2015.

HMRC have estimated that the change could affect 250,000 businesses that currently offer or receive prompt payment discounts.  Businesses affected will need to change systems and revise paperwork accordingly.