Prompt Payment Discount

A prompt payment discount is a discount for paying an invoice early to encourage early payment. As this is a reduction in the sale amount the figures will need to be adjusted in the accounts to reflect the actual values and VAT due.

It's important to note when a prompt payment discount is offered the invoice needs to be prepared as normal and will not show the discount offered

There are two ways to show this:

1) Seller Issues a Credit Note (AAT method)

In this method (the AAT assessed method), a credit note will be issued partially reversing the net and VAT totals by the amount of the discount.

.A credit note will only be issued if payment is made early (within the specified time frame), otherwise the invoice will need to be paid in full.

2) Seller includes a PPD notification in invoice (Alternative)

In this method the below approved HMRC statement needs to be included on the invoice. When using this method the buyer needs to be aware that they will need to account for the lower totals and VAT amounts.

A discount of X% of the full price applies if payment is made within Y days of the invoice date. No credit note will be issued. Following payment you must ensure you have only recovered the VAT actually paid.