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HMRC internal manual

VAT Valuation Manual

Special valuation provisions: other types of discount

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.

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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.

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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.


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Discounts allowed with part-exchange goods

See VATVAL06000