Related article: What happens if you pay VAT to HMRC but never receive the VAT back from your client? You may be able to reclaim the VAT.
Try this quiz to see if you can calculate VAT on discounts. To answer, check a tick box against one of the options below and click submit to reveal the answer.
A supplier offers a customer a trade discount of 10% for orders over £500, and a prompt payment discount of 2.5% if the invoice is paid within seven days. The customer places an order for £600 (net) and pays within seven days. The amount the customer pays is:
The correct answer is £631.80.
£648.00 is the amount that will be shown on the invoice, not the amount paid by the customer. £702.00 is the order of £600 with the prompt payment discount applied and VAT added, but not the trade discount.
This is correct. The net amount after the trade discount is £540.00 (£600.00 x 90%).
The prompt payment discount is £13.50 (£540.00 x 2.5%). So the net amount (with prompt payment discount) is £540.00 - £13.50 = £526.50. The VAT is £105.30 ((£540.00 - £13.50) x 20%). The customer pays £631.80 (£540.00 - £13.50 + £105.30).
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