Prompt-payment discount (UK VAT)
When a supplier offers a discount conditional on prompt payment, VAT is based on the consideration actually paid. If VAT must be accounted for before it is known whether the customer will take the discount, the supplier initially accounts for VAT on the undiscounted price and adjusts if the discount is taken, using appropriate evidence and invoicing procedures.
Worked example
A standard-rated sale in 2025–26 has a VAT-exclusive price of £1,000 with a 5% prompt-payment discount. If the customer qualifies for and takes the discount, the taxable price is £950 and VAT at 20% is £190. If the discount is not taken, the price is £1,000 and VAT is £200.
Common mistake
Calculating VAT on the discounted amount merely because a discount was offered when the customer did not take it.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | TX (UK) | Supporting | June 2026–June 2027 |