Chapter 18 Value of the Supply Flashcards
18.2 Prompt payment discount
Traders sometimes offer discount for prompt payment. VAT can only be calculated on the discounted amount when the customer takes advantage of the discount. VAT must be levied on the full amount charged for the supply and the invoice must show the full price and full VAT amount. Suppliers can use on of the following methods to adjust their accounts if the customer takes the discount.
• The supplier issues a credit note to evidence the reduction in consideration
• The invoice must include the terms of the prompt payment discount and a statement that the customer can only recover the input tax the VAT paid to the supplier
18.3 Increases and decreases in consideration
An increase occurs where the change is agreed by both the supplier and the customer. The supplier must issue a debit note to reflect the change in price and they have 14 days from the date of acquisition to issue it.
A decrease occurs where the supplier makes a refund to the customer. A credit notice must be issued and the 14 days’ time limit starts. A decrease will only apply where there has been an actual refund in money by the supplier
The supplier must account for the increase/decrease in the VAT period in which it occurs.
18.4 Deemed Supplies
This requires a trader to account for output tax even though there is no actual sale for a consideration to a third party. This applies where a taxable business buys something recovers the input tax and puts those items to a non-business use.
18.5 Motor Fuel Provided for private use
If a business buys petrol or diesel and allows private use by an employee then the business has four choices from a VAT perspective.
• Claim all input tax and calculate the output tax using the fuel scale charge by HMRC
• Claim no input tax
• Keep mileage records to proof the fuel was for business purposes
• Recover all input VAT and make a charge to the employee for the cost of the private fuel element
