Settlement discounts on sales transactions

If the invoice hasn't been paid, the VAT should be calculated at the full goods value before the discount. When you record the invoice, Sage 200 will calculate the VAT at the full rate, by default. For invoices with settlement discounts, you can also enter the following additional values:

• Discount %
• Net Discount
• VAT Discount

Depending on the values entered, the Invoice total and Discounted invoice total are calculated. The Disc Inv Total is the amount that you expect to be paid within the discount period.

You can change the values as required. Don't forget - the totals in the VAT Analysis section must match the values in the Transaction Details.

For an invoice of £100 with a 5% settlement discount, the following values are calculated:

• VAT = 20.
• Discount value = 5.
• VAT discount = 1.
• Invoice total = 120.
• Discounted value = 114.

If the invoice has been paid straight away, the settlement discount will have been taken. The VAT on the invoice sent to the customer will already be discounted.

When you record this invoice in Sage 200, select the Settled immediately check box. This tells Sage 200 to calculate the VAT on the discounted invoice amount. In this case there is no need to process an adjustment to account for the VAT discount.

For an invoice of £100 with a 5% settlement discount, the following values are calculated:

• VAT = 19.
• Discount value = 5.
• VAT discount = 0.
• Invoice total = 119.
• Discounted value = 114.

When you enter a full payment with a sales order with settlement discount, the net and VAT discounts are automatically applied and used to calculate the payment amount. In this case there is no need to process an adjustment to account for the VAT discount.

Note: You must select Full Payment when entering the payment details. If you just enter the payment amount, it's treated as a part payment and the discount is not applied.

For an invoice of £100 with a 5% settlement discount the payment amount is £114. This is the gross amount (£120) minus the net discount (£5) and the discounted VAT (5% x 20 = £1).

If the Full payment option is not selected, these are treated the same as invoices where no payment is entered. The VAT is calculated at the full amount.

1. Record the receipt and include the net discount amount, but not the discounted VAT.

   For a payment of £114 with net discount of £5, a transaction is posted for £119. The net discount is posted to the Discounts Taken nominal account.

   

2. Allocate the receipt to the invoice.

   Make sure the allocated amount of the invoice matches the receipt amount. The discounted VAT amount will remain outstanding.

   If the settlement discount is still valid, the Disc due is highlighted yellow on the allocation screen. The Allocate amount will default to the payment plus the net discount.

   For a payment of £114 with a net discount of £5, the default Allocate amount is £119.

   

   If you use the Auto Allocation option, the Allocate amount is automatically reduced by the VAT discount as long as it's not part paid.

   If the settlement discount is no longer valid, the full invoice value is allocated by default.

If you need to reverse a transaction with settlement discount, or you refund a customer, remember to reverse all the elements of the transaction that you've entered into Sage 200:

• If you recorded the discount amount when you entered the receipt, then the discount amount will have been posted to the Discounts Allowed nominal account. If you want to reverse this when you record a refund, enter the net discount amount on the Payment screen.
• If you recorded a VAT adjustment to account for the VAT discount, you'll need to create a VAT only invoice to reverse this.

Note: When you use the Reverse transaction options, all values on that transaction are automatically reversed. For example, if the invoice contained settlement discount then the reverse credit note will also contain the settlement discount.

We recommend that you don't use Balance Forward for accounts where you offer a settlement discount. This is because the discount details are lost when individual transactions are replaced with the brought forward balance.

If you want to import transactions after 1st April 2015, you can additionally import the VAT discount value and flags for Settled Immediately and VAT Disc Document Expected.

These fields have also been added to template CSV files.

New default invoice and credit note layouts have been included which contain the additional text and fields required by HMRC for invoices that contain settlement discount. You'll need to make sure that your custom layouts also contain this text and the additional fields. We recommend that you customise the new default layouts.

1. You offer a settlement discount of 5%:
2. You record the details of an invoice for £100. VAT is calculated at £20. You enter the discount percentage and amount which is £5.
3. You receive payment for the invoice within the specified period and the customer has taken the discount, so they pay you £114. This is the gross amount (£120) minus the net discount (£5) and the discounted VAT (5% x 20 = £1).
4. You record the receipt and enter the cheque value as £114 and add the discount value as £5. This creates a transaction value of £119.
5. You allocate the invoice (£120) to the receipt (£119). The VAT discount of £1 is still outstanding
6. You create a credit note for the VAT discount of £1.
7. You allocate this to the remaining balance on the invoice.

The following values are posted to the nominal ledger: