From 1st April 2015 the process for dealing with the VAT on invoices where an early payment discount is offered (known as a Prompt Payment Discount or PPD) will change.
Now the supplier should show the VAT calculation on the basis that the customer takes advantage of the PPD and pays the reduced price. Both the supplier and the customer account for VAT on the reduced amount.
In all cases, both the supplier and customer must ensure that they account for the actual amount of VAT paid and received.
Is this complicated? Yes.
The solution – do not offer PPD. Experience tells us that in most cases the customer will pay late and still deduct the Prompt Payment Discount if it is offered, which just makes more work.
EBS will be happy to offer advice.