Common VAT Problems

3. Discounts and Part Exchange

3.1 Discounts can be problematic. The VAT you pay depends on how the discount is offered.

• If you give an unconditional discount (such as a sale or trade discount), VAT is based on the discounted value of the full sale.
• The same applies if you offer a discount for prompt payment - even if the customer does not pay promptly.

3.2 VAT is calculated on the full value of any part-exchange or barter transactions.

• You must calculate the VAT as if the transaction had been entirely for cash (ie purchases and sales at the full price). VAT invoices must be issued accordingly.