Discount for Prompt payment within discount period

Sales discount - for seller

Purchase discount - for buyer (periodic)

a. If silent - no discount to consider

b. If it says, " terms 2/10, n/30"- then discountcan only be takenn when paid on or before discount period even if n
c. If it says, " terms 2/10, n/30, discount can only be taken upon full paymnet" - then the discount can only be take

Calculating VAT for Prompt Payment- SINCE I HAVEN'T TAUGHT YOU HOW TO CALCULATE REDUCTION IN OUTPUT VAT AND IN
Calculating the VAT on a prompt payment discount is more complicated than the calculation for a trade discount.
With a prompt payment discount the VAT is based on the actual amount received, but you (the supplier) will need to account f
To calculate VAT on a prompt payment discount:
a. decide which of the options below your business wishes to follow
b. calculate the VAT in the normal way, i.e. net x VAT rate.

Choose one of the following two options:

Option 1. Issue a credit note - If the customer pays the lower amount (ie. takes advantage of the prompt payment discount offe
Option 2. Include further information on the original invoice - If you do not want to issue a credit note each time a customer ta
A statement that the customer can only recover the VAT actually paid, and
the terms of the prompt payment discount. HMRC recommends that we include the discounted price, the VAT on the discount
HMRC recommend the following standard wording: “A discount of X% of the full price applies if payment is made within Y days

Example: VAT- registered individual paid its Accounts Payable within discount period. Terms 3/10, n/30

Accounts Payable 1,120.00

Cash (1120/1.12 * .97)* 1.12 1,086.40
Purchase Discount (1120/1.12 *.03) 30.00
Input Tax (1120/1.12 *0.03)*.12 3.60

NOTE: There's no discount for Input Tax included in Accounts Payable

The decrease in payment of cash, is the decrease of your input VAT
Accounts Payable and Accounts Receivable are always inclusive of VAT
 r before discount period even if not in full
then the discount can only be taken when payment is made in full (AR/AP is zero for specific customer)

EDUCTION IN OUTPUT VAT AND INPUT VAT FOR PROMPT PAYMENT DSCOUNTS
for a trade discount.
he supplier) will need to account for the VAT and prepare the invoice before the amount is received.

the prompt payment discount offered), issue a credit note for the amount of the discount (plus VAT).
edit note each time a customer takes advantage of a prompt payment discount, then further information must be included on the original

ted price, the VAT on the discounted price and the total amount due if the prompt payment discount is taken up.
s if payment is made within Y days of the invoice date. No credit note will be issued. On payment you may only recover the VAT actually pai

od. Terms 3/10, n/30

must be included on the original invoice:

only recover the VAT actually paid”.