Discount & VAT.. help!

[Meg888]

I've locked horns with a supplier of ours who are insisting we are mis-calculating the correct way to deduct discount.

The way I do it, is by deducting the agreed 2.5% from the nett figure then re-calculating the VAT and adding it back.

They are saying we can deduct the 2.5% from the nett, but we must pay the VAT that is calculated on the original amount.

The discount only applies if we pay strict 30 days or under, so they do not deduct it on submitting the invoice; there are huge sums involved, so it is important I get it right - we have always done it this way, with this supplier but now because somebody new has come along they are stating we are doing it wrong??

[bednobs]

my maths is atrocious, but isn't it advantageous for you to do it their way - isn't the discount more if you take it off the inclusive amount?

[emeritus]

HMRC state that VAT is charged on the discounted price

http://www.hmrc.gov.u...g/discounts-etc.htm#1

[Meg888]

No, they don't want me to take it off the amount including the VAT - they want me to deduct it from the Nett (excl VAT amount) and pay the VAT on the original amount.

We're VAT registered so we can claim any VAT back, but it just causes havoc with our system as it doesn't calculate it the same way. Besides, I've always believed you should only pay the exact amount of VAT due on the nett.

[buildersmate]

I cannot think of any other answer than that VAT is added on the invoiceable sum. So you are right.
If they are insisting that the discount has to be retrospectively applied AFTER the original invoice sum is submitted (on the grounds that they don't know that your company is eligible for the discount at the original invoice date), then try pointing out that the DISCOUNT you are due on earlier payment should THEN have VAT added back onto it (making the total discount sum greater).
That, if you get my drift, ends up being the same way as you calculated it.

[johnk]

it's as you say. if you pay more Vat than you need to you won't be able to reclaim the extra amount. They have to submit the going rate % wise on any invoice so i assume they will refund the discount + VAT on the discount on payment. Seems a long winded approach. If you are a major customer I would negotiate another method or go elswhere.

[buildersmate]

Quoting johnk "if you pay more Vat than you need to you won't be able to reclaim the extra amount" - but Meg won't - she will pay 20% of the invoiceable sum.
"i assume they will refund the discount + VAT on the discount on payment" - which is the same as I am saying.

[Meg888]

Thanks folks for your replies. I took the matter up with our accountant who agreed with me; if they want me to pay the full VAT amount, then they need to issue me with a credit for the discounted amount + VAT - which as you say, is long winded and then it works out exactly as I'm calculating it! Nowt as queer as folk....!