Prompt Payment Discount
From 1 April 2015, when processing an invoice, VAT will be calculated on the goods value before any prompt payment discount is applied. This change will affect any business that either receives or gives prompt payment discount for prompt payment of an invoice.
When the legislation change becomes effective, HMRC must receive the full value of VAT on an invoice if the settlement discount is offered but not taken. Any unbilled sales orders posted before 1 April 2015 require billing from that date under the new rules.
Using credit notes to adjust the VAT Return
If the prompt payment discount is taken an accounting adjustment will need to be made to post the discount and to adjust both the goods and VAT values on the VAT Return.
In Opera 3 and Opera II this must be done by a credit note posting.
Updated Opera 3 & Opera II versions
If you offer or receive prompt payment discounts terms, you must upgrade before 1 April 2015. You must also run Update Data Structures after upgrading your software.
These are the updated versions: Opera 3 (2.22) Opera II (7.42).
1. Invoices that offer prompt payment discount dated before 1 April 2015 must be processed under the old rules. Any receipts received that do take advantage of the discount will not require accounting for under the new rules.
You may then want to consider billing all relevant outstanding quotes, orders etc because after 1 April 2015 they must be billed using the new prompt payment discount rules. Also, if you change quotes, orders etc, on or after 1 April 2015, the VAT will be recalculated using the new rules so will not be the same as the original value.
2. Credit notes in SOP/Invoicing can now be emailed. Consider whether you want to update customers who are offered prompt payment discount to receive credit notes via email. If you do, update the customer’s record on the Sales – Processing – Terms form. Credit notes must be posted to adjust the VAT Return if prompt payment discount is taken.
3. If possible, ensure any required credit notes for invoices with prompt payment discount raised under the old rules are posted before 1 April 2015. Otherwise the credit note will be processed using the new rules and you’ll need to post a VAT-only invoice to adjust the VAT. If you post the credit note in SOP/Invoicing you will also have documentary evidence. If you post it in the Sales Ledger you will need to provide documentary evidence in another way.
4.Ensure that any invoices printed before 1 April 2015 do not include references to the new prompt payment discount rules. Any invoices posted before 1 April 2015 that are reprinted after that date will be printed with VAT values as they were originally calculated.
1. Consider whether prompt payment discount should be taken for invoices using the Authorise Cheques or Authorise BACS commands before 1 April 2015. This will allow the discount to be taken under the old rules. Important: The Authorise Cheques and Authorise BACS commands will not be available for discount processing under the new rules.
2. Try to resolve any supplier disputes involving invoices posted before 1 April 2015 and post necessary credit notes.
3. If you use the Purchase Invoice Register and there are invoices in the PIR that have yet to be posted to the Purchase Ledger, process those invoices to update the Purchase Ledger before 1 April 2015.
Before 1 April 2015: things to consider
You may want to consider these points before 1 April 2015 to smooth the transition to the new prompt payment discount rules.
Setting up Opera for the new ruling
Follow this chart on 1 April 2015 so that VAT is calculated before prompt payment discounts for home currency transactions in Opera 3 or Opera II.
HMRC has not mandated the need to issue a credit note to deal with the prompt payment discounts adjustment although in Opera 3 and Opera II a credit note must be used to account for the VAT liability as well as the discount value of the goods or services.
It will be necessary for the purchase ledger clerk to have an understanding of whether the supplier is expected to confirm the VAT Adjustment required via a credit note. This may cause operative issues as the user may wish to pay the invoice to take advantage of the prompt payment discounts offered but is not aware of the VAT adjustment required. They will have to gain confirmation of the adjustment required and the supplier reference before raising the credit note in order to allocate and close down the transaction.
1. You cannot use the Authorise Cheques and Authorise BACS commands for invoices where prompt payment discount can be taken. These invoices will be marked with an * to indicate that they must be paid using manual payments in the Purchase Ledger. You can still use the Suggested Payments Report to view the invoices where prompt payment discount is offered.
Sales Ledger & Invoicing/SOP
If you offer prompt payment discounts to your customers, the invoices generated should be printed using the new PEG630 prompt payment discounts invoice design (SQININSD). This design will highlight to the recipient of the invoice the amount of VAT that is required to be adjusted if full payment of the invoice is made by the stated dates.
If a customer takes up the offer of prompt payment discount, the VAT liability as well as the discount value of the goods or services will need to be accounted for. In Opera 3 and Opera II this must be done by raising a credit note.
Raising the transaction through the Sales Order Processing or Invoicing applications will mean that documentary evidence of the prompt payment discounts credit is automatically created. It is your responsibility to provide HMRC with documentary evidence of a prompt payment discounts adjustment, if required to do so in a VAT audit.
You will need to consider how you want to treat the sales analysis of the credit note posting, either posting to a Discounts Allowed Profit and Loss Account or the Sales Profit and Loss Account used on the original invoice line.
When the receipt is banked, the invoice and credit note can be allocated against the receipt to close down the transaction.
When sending statements to your customers, you should use the new statement design (PEG610) that will display details of the second reference of the credit note, so this could be used to identify the invoice that the credit note relates to.
How prompt payment discounts affect your Opera 3
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