SAP Business One – Prompt Payment Discount

Note: This feature is relevant for companies based in the UK only. If you are using the Great Britain localization of SAP Business One for a company based in Ireland, this feature is not relevant and no further action by you is required.

When you create a payment in SAP Business One and apply a cash discount (prompt payment discount, PPD), the application posts a VAT proportional to the discounted price on the invoice.

Example
  1. Create an A/R invoice with a cash discount that is applicable if the business partner meets specific payment terms (cash discount terms).
  2. The application charges the VAT amount proportional to the discounted amount of the invoice.
  3. The customer (BP) pays the A/R invoice according to the cash discount terms and you apply the cash discount on the incoming payment.

As of April 1, 2015, changes to the VAT legislation on PPD come into effect. Most importantly, suppliers must account for VAT on the amount they actually receive in payment and customers must recover the amount of VAT that is actually paid to the supplier. To support this, the HM Revenue and Customs (HMRC) provides two options:

Suppliers may issue a credit note to record the reduction in consideration.
If suppliers do not wish to issue a credit note, the invoice must contain additional information, including the terms of the PPD and a statement that the customer can only recover the VAT paid to the supplier as the input tax.

The new regulation requires the following:
  1. You create an A/R invoice with a cash discount that is applicable if the business partner meets specific payment terms (cash discount terms).
  2. The application charges the VAT amount proportional to the full amount of the invoice.
  3. The customer (BP) pays the A/R invoice according to the cash discount terms and you apply the cash discount on the incoming payment.

For details on this legal change, see the official website of the HMRC.

For further details on PPD please contact us.

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