Reduction on invoice if paid quickly?

Discussion in 'UK Accountancy' started by A.Lee, Jan 17, 2013.

  1. A.Lee

    A.Lee Guest

    Due to a number of slow payers, I think I'm going to try to entice them
    into paying quicker by reducing the price if it is paid within a week.

    Say an item is £100, I will invoice for £100, but make a note that if it
    is paid within x days, then only £95 will be payable.

    Any views on that?

    How do I account for that?
    Book it down as £100, or, book it down as the amount received if paid in
    time to get the discount?

    Ta
    Alan.
     
    A.Lee, Jan 17, 2013
    #1
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  2. Good plan, if only because the VAT will be on the £95, regardless of
    what is actually paid. The book-keeping is an issue for others here to
    advise on.

    Someone I know had this sluggish-payment problem. He upped his rate
    by 30%, then offered a 30% discount to anyone who paid on time! Worked
    a treat, and they got a "more expensive" professional at the same
    discounted rate :)
     
    Harrison Hill, Jan 17, 2013
    #2
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  3. A.Lee

    Martin Guest

    Good plan, if only because the VAT will be on the £95, regardless of
    what is actually paid. The book-keeping is an issue for others here to
    advise on.

    Someone I know had this sluggish-payment problem. He upped his rate
    by 30%, then offered a 30% discount to anyone who paid on time! Worked
    a treat, and they got a "more expensive" professional at the same
    discounted rate :)
     
    Martin, Jan 18, 2013
    #3
  4. A.Lee

    Fredxx Guest

    http://www.hmrc.gov.uk/manuals/vcasmanual/vcas5100.htm

    should help.

    Notice 700 The VAT Guide says:

    (b) Discounts for prompt payment

    If…
    you offer a discount on condition that the customer pays within a
    specified time

    Then…
    the tax value is based on the discounted amount even if the customer
    does not take up your offer.

    But…
    if your terms allow the customer to pay by instalments, the tax value is
    based on the amount the customer actually pays.


    I don't know when it changed but used to that VAT was payable on the
    undiscounted amount even if the offer was accepted.
     
    Fredxx, Jan 18, 2013
    #4
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