SolvedVATVAL08600 | Special valuation provisions: other types of discount
From HM Revenue & Customs · VAT Valuation Manual
Prompt payment discounts are the only form of discount for which Schedule 6 of the VATA 1994 makes specific provision. You may encounter several other types of discount being offered by traders.
How to adjust the records can be found in the V1-24A guidance: Trader Records (web)
Cash discounts
Trade discounts
Customer discounts - a glossary of terms
Discounts allowed with part-exchange goods
Cash discounts
Discounts may be offered when a payment is made wholly in cash. VAT will be due upon the lower sum under the ordinary rule in section 19(2) because the consideration is only the sum of money that has actually been paid.
Trade discounts
These provide special prices to particular customers or groups of customers, including sales to staff at reduced prices. VAT is due upon the discounted payments. Like cash discounts, the only consideration for the supplies is the money actually paid so section 19(2) of the VATA applies.
Customer discounts - a glossary of terms
| Type | Principles | VAT position |
|---|---|---|
| Agreements and advertising allowances | Like business protection deals. Applies in main to smaller outlets. Customer invoices manufacturer | Taxable |
| Business protection deals | One-off lump sum. Usually paid annually. Customer invoices manufacturer. Protects the business with the customer | Taxable |
| Consumer marketing | Often in-store. Supplier invoices manufacturer | Taxable |
| Long-term retro | Pence per case rebate. Customer invoices manufacturer. Volumes expressed in cases | Follows liability of goods |
| Lump sums | One-off payment to secure best spot in store eg gondola ends and ends of shelves. Usually attached to a promotion (STR, PP, MSV) | Taxable |
| Multisave (MSV) | Based on triggers (EPOS systems) and redemption rate. Includes BOGOF, three for price of two, two for £1.50 etc. Customer invoices manufacturer on basis of volume sold | Follows liability of goods. |
| Over-rider | % discount paid to the customer monthly / quarterly / annually. Customer usually invoices manufacturer. Pence per case rebate | Follows liability of goods |
| Price promotions (PP) | Off invoice discounts. No action by customer | Follows liability of goods. |
| Short-term retro (STR) | Pence per case either bought during the period or sold during the period. Given to customer either as multisave or price promotion. Customer invoices manufacturer | Follows liability of goods. |
| Third party rebate or end-user rebates | Rebate paid to customer for supplies to one of their customers or paid to customer of manufacturers’ customer. National account manager will often supply volumes/wholesaler reports based on pence per case or percentage. Customer invoices manufacturer | From 01/03/07 VAT registered business customers must reduce their input tax and manufacturers their output tax. |
Discounts allowed with part-exchange goods
See VATVAL06000