Cash accounting scheme: Records and accounts: Discounts on VAT invoices
If a prompt payment discount is offered, VAT is chargeable on the discounted tax-exclusive invoiced price, even if the customer does not take up the offer. Where an eligible business using cash accounting offers such a discount, you should ensure that the VAT accounted for is the amount actually charged on the invoice and not the VAT fraction of the payment reflecting the invoice total; otherwise the business will be accounting for more tax than is due. The input tax reclaimable is similarly limited to the maximum of the VAT charged on the invoice. Notice 700 The VAT Guide (GOV.UK) provides guidance on discounts: it is supplemented by V1-12 Valuation.