VAT on wholesale or trade discount

Discussion in 'Accounts & Finance' started by Munchkette, Mar 7, 2018.

  1. Munchkette

    Munchkette UKBF Newcomer Free Member

    2 0
    I've just started up as a sole trader, I have not registered for VAT as I'm no where near the threshold therefore I cannot claim back VAT charged on purchases from suppliers which is fine by me.

    I am just wondering whether I'm being overcharged VAT by a supplier. They offer a 50% discount for wholesale buyers. The 50% discount is applied to the RRP (inclusive of VAT) then 20% VAT is added to the total invoice amount.

    Example RRP (including VAT) £53, Discounted price £26.50, Final price (incl VAT) £31.80

    However am I right in thinking the discount should be applied to the RRP net of VAT? Therefore the discounted price of £26.50 should be the final value I pay as this already includes VAT and not £31.80?

    By my calculation the net RRP (excluding VAT) is £44.17, applying 50% discount to this gives £22.09
    Final price (incl VAT) is therefore £26.51 or pretty much £26.50
    The VAT due being £4.42
    Posted: Mar 7, 2018 By: Munchkette Member since: Mar 7, 2018
  2. Toby Willows

    Toby Willows UKBF Regular Free Member

    759 164
    They can discount however they want, as long as vat is charged on the invoice total it’s up to them how they arrive at the net figure.
    Posted: Mar 7, 2018 By: Toby Willows Member since: Jun 20, 2016
  3. TheCyclingProgrammer

    TheCyclingProgrammer UKBF Regular Free Member

    907 189
    As above, it's up to them how they discount it but to answer your question, yes I would expect 50% off to mean 50% off, which means the net discounted value is half of the net value.
    Posted: Mar 7, 2018 By: TheCyclingProgrammer Member since: Jul 15, 2014
  4. Munchkette

    Munchkette UKBF Newcomer Free Member

    2 0
    :( Doesn't seem right that they can discount however they want. Isn't there some kind of standard practice?
    Posted: Apr 6, 2018 By: Munchkette Member since: Mar 7, 2018
  5. Mr D

    Mr D UKBF Legend Free Member

    10,599 1,110

    Yes there is standard practice.
    The charging you 20% VAT is standard practice.

    How to work out the discount, no there is no standard. The 50% discount applied to RRP then 20% VAT added on is common enough - I can name 3 companies I've dealt with that have done it that way.
    Can also think of other companies who do it as you suggest.

    At the end of the day if you aren't happy with what you are offered then don't take it. Find a better deal elsewhere.
    If you are happy enough with the deal offered then take it as it is. Maybe if you get to be a big enough customer you can try and negotiate.
    Posted: Apr 6, 2018 By: Mr D Member since: Feb 12, 2017
  6. STDFR33

    STDFR33 UKBF Big Shot Free Member

    3,571 867

    It is their business. They can offer whatever discount they please.
    Posted: Apr 6, 2018 By: STDFR33 Member since: Aug 7, 2016