Other related topics, use Discounts and Settlement Discounts, detail the method for setting up and using discounts. However, you should note that these topics - while generally accurate in describing the process - do contain superseded references that have been left for legacy purposes.

For the background and further information on this feature, please Search "VAT on Payment Discounts" at www.gov.uk.

From April 2015, HM Revenue & Customs reinterpreted the way in which VAT is calculated when there is a settlement discount offered for prompt payment in order to align the UK with EU Legislation.

VAT on all invoices should be made on the full invoice price before any settlement discounts are offered. Suppliers must account for VAT on the amount they actually receive, and Customers may recover the amount of VAT that is actually paid to the supplier. You should decide, before issuing an invoice, whether to adjust your accounts using a Credit Note or an adjustment.

For GB databases, when creating a New Database or editing your Home Defaults, and choosing your VAT Settlement Discount Method, Access Accounts offers to 'Adjust at point of payment' as the default method, however, you still have the options to 'Include in tax calculation' or 'Exclude from tax calculation' as legacy methods. For non-GB databases, the default method is to 'Exclude from tax calculation'.

When an invoice is created via Sales Ledger, Purchase Ledger, Sales Orders, or Purchase Orders, and when using 'Adjust at point of payment', then VAT is calculated on the full Net value of the transactions regardless of Settlement Discount terms.

In an Upgraded Database (where the option has been activated) and there are existing batched transactions with Settlement Discount, the following points apply. These points also apply to PL Batch and POP Batch.

An invoice should be issued describing the terms of any applicable Settlement Discount, and clearly stating that no credit note will be issued.

When you have received payment from the customer, if the Settlement Discount has been taken then when you generate the receipt via Bulk Receipts a sales-type credit note is automatically generated to adjust the accounts. As the invoice being paid could have multiple detail lines with different VAT Rates when the Settlement Discount adjustment is created, the system rolls up the detail lines by VAT rate, and the Settlement Discount is created on the Gross Value of the Invoice and then Net and VAT are calculated using the Gross Discount value.

Example: Raise a SOP Invoice with a 12% Settlement Discount.

Discount value = 101.79 (i.e. 12% of 848.25)

Payment value = 746.46

When you receive an invoice from your supplier that includes a Settlement Discount, it will state whether the Settlement Discount will be adjusted via a Credit Note. The Invoice should be processed so that you recover the full VAT amount.

When you make payment and take up the Settlement Discount an adjustment should be made to your accounts. If you use Cash Allocations then you will need to enter a manual adjustment and include this with the invoice and payment when allocating; however if using Remittances then the system automatically posts an adjustment using a purchase-type credit note that updates the Purchase Discount rather than Purchases. If you are expecting a Credit Note from your supplier then you will need to file the Credit Note without processing it via Accounts.

Example: Raise a POP Invoice taking a 12% Settlement Discount:

Discount taken = 101.79

Payment value = 746.46