Prompt Payment Discount and VAT

[REG091]

Had some work done on the house and the invoice offers a 2.5% discount if paid within 7 days. This figure is calculated from the pre-vat amount. But I am still expected to pay the full vat amount calculated as if there were no discount applied. This doesn't seem right to me.

Found some HMRC guidance for businesses which seems to suggest that the customer (me) has to recover the overpaid VAT through their VAT account. Well, I am not registered for VAT so that can't apply.

Any ideas?

[REG091]

Anyone? This cannot be right. It means that I am paying VAT on an amount I haven't paid. "Explanation" from the company is: "The reason the discount is calculated on the pre-vat figure is because we have to submit our invoices for the VAT without discount, unfortunately the tax man doesn’t want to give discount too!."

Still means that I am paying HMRC too much VAT on this transaction.

[bibescu]

You are going to pay VAT for the discounted price.
The supplier should issue a credit note to you for the discount and reduction in VAT.
https://www.gov.uk/government/publicati ... -discounts.

[REG091]

Thanks bibescu but, what use is a credit note to me? Can I pay it into my bank? I am not a business, just a customer. Also, they make no mention of issuing a credit note.

[bibescu]

Credit note is the document to correct the initial invoice. Based on it, they can adjust VAT return and you can receive refund if you already paid.
No, you can not pay it into your bank.

[REG091]

Interesting, thank you. So I pay, they send me a credit note what do I do? Send it back to them and they then send me a cheque? We are only talking a few quid it seems a crazy process.

I see that HMRC suggests that businesses could include a calculation on their invoice to show the total Inc vat on the discounted amount and the customer would pay that. Seems a simpler process but apparently is not compulsory.