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AAT Assessment News - Prompt Payment Discounts

AAT Assessment News - Prompt Payment Discounts

You may be aware that the rule about how to account for VAT when offering PPD (also known as cash or early settlement discounts) changed on 1st April 2015.  Awarding bodies need time to adjust to the changes so AAT took the decision to assess the new rule from 1st September 2016 for AQ2016 qualifications.

For AQ2013 qualifications between 1st September 2016 and 31st December 2016 you have a choice of assessment method:

  • You can choose to be assessed on older legislation (Early Settlement Discount - ESD) 
  • You can choose to be assessed on current legislation (Prompt Payment Discount - PPD)

If you are studying AAT level 2 AQ2013, it's essential that you tell the assessment venue which legislation you would like to be assessed on when booking bookkeeping assessments.  Also check the right assessment has been scheduled before you open the assessment.

We have attached a document to this news article which illustrates how prompt payment discounts (also known as cash discounts or early settlement discounts) will be assessed.

To summarise:

  • VAT is now charged on the goods total as it is with any other invoice
  • If the customer takes advantage of the discount, they're required to reduce the amount of VAT so it reflects the amount actually paid
  • The supplier can then issue a credit note for the amount of discount taken
  • Or they can adjust the output tax on their VAT return if they don't wish to issue credit notes
  • However HMRC require the supplier to clearly state the terms of the PPD on the invoice (in particular when the invoice must be paid by to claim the discount) and a statement clearly advising the customer that they can only reclaim the amount of VAT paid as input tax

If you have any questions regarding this, please contact your AAT training provider.


Download file: Prompt Payment Discounts and VAT

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