4 April 2015    |    Taxation, Technology

New VAT rules on customer discounts

New VAT rules on customer discounts

Prompt payment discount and VATNew rules on prompt payments came into effect on 1 April 2015.  New rules apply to the VAT treatment of prompt payment discounts (PPDs). VAT can only be reduced to reflect the discounted price if the customer pays within the discount period. Previously it applied whether or not the customer paid on time.

Changes to your invoicing.

There are two recommended Ways to handle the new rule when you bill a customer. You can either issue an invoice showing:

  • the full price plus the VAT on it. If the customer takes up the PPD you must issue a credit note; or
  • the full price plus VAT, the terms of the PPD and the date the payment is due to qualify. There must also be a note to say that if the customer qualifies, a credit note won’t be issued and that they will only be entitled to recover the VAT they pay.


If you offer discounts to customers who pay promptly VAT is now worked out on the full price unless they actually pay on time. lt’s recommended that invoices now show full terms of the discount and a note saying that the customer can only reclaim the amount of VAT they actually pay.

If you need more advice or help with updating your computer software, then please contact Sue.


The information provided is for general information purposes only.

Legislation and details may have changed since this was written.  The text may not include all matters that are relevant to your individual situation.

You should not make decisions, or refrain from making decisions, without taking further professional advice about your specific circumstances.

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