hamedi98
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Size:  81.9 KB can anyone explain the top paragraph to me because I haven't got a clue
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MindMax2000
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PPD is a discount for paying on time or early. It's typical to have that in place for large manufacturers or suppliers. e.g. if you pay within 14 days, you get 2% off the invoice the supplier charges the client.

Discount for bulk buying is where you get a discount for buying in large amounts e.g. a 5% discount can be provided if, say, you order 10k units instead of 5k.

When calculating VAT, you calculate it based on the total of the order after bulk discount is taken off, but not before PPD. Although it's not explicitly said (because HMRC never says why), we can infer that HMRC don't want the extra work of adjusting for VAT if PPD is not enacted i.e. if the customer did not manage to pay on time.

Example:
A retailer is going to order 10k units for £10 each (exc. VAT). The following discounts apply:
Bulk discount 5% off if order size is more than 5k units
PPD of 2% if paid in 14 days

10k units @ £10 = £100k
Less 5% bulk discount (because you're ordering more than 5k units) = -£5k
= Net £95k
Apply VAT at 20% (assuming it's not a VAT exempt good, etc. ) = £19k
= Gross £114k

PPD: If the retailer pays within 14 days of the due date, the retailer gets a 95k*2% = £1.9k discount
Total is £114k - £1.9k = £112.1k

If the retailer pays after 14 days, the full £114k is due.

Notice PPD is not applied during the VAT calculations, and does not change after VAT calculations. The £1.9k is coming out of the manufacturer's pocket only.
If there are no bulk discounts provided, PPD is still only applied after VAT, and VAT is applied on the £100k.
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hamedi98
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Report Thread starter 10 months ago
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(Original post by MindMax2000)
PPD is a discount for paying on time or early. It's typical to have that in place for large manufacturers or suppliers. e.g. if you pay within 14 days, you get 2% off the invoice the supplier charges the client.

Discount for bulk buying is where you get a discount for buying in large amounts e.g. a 5% discount can be provided if, say, you order 10k units instead of 5k.

When calculating VAT, you calculate it based on the total of the order after bulk discount is taken off, but not before PPD. Although it's not explicitly said (because HMRC never says why), we can infer that HMRC don't want the extra work of adjusting for VAT if PPD is not enacted i.e. if the customer did not manage to pay on time.

Example:
A retailer is going to order 10k units for £10 each (exc. VAT). The following discounts apply:
Bulk discount 5% off if order size is more than 5k units
PPD of 2% if paid in 14 days

10k units @ £10 = £100k
Less 5% bulk discount (because you're ordering more than 5k units) = -£5k
= Net £95k
Apply VAT at 20% (assuming it's not a VAT exempt good, etc. ) = £19k
= Gross £114k

PPD: If the retailer pays within 14 days of the due date, the retailer gets a 95k*2% = £1.9k discount
Total is £114k - £1.9k = £112.1k

If the retailer pays after 14 days, the full £114k is due.

Notice PPD is not applied during the VAT calculations, and does not change after VAT calculations. The £1.9k is coming out of the manufacturer's pocket only.
If there are no bulk discounts provided, PPD is still only applied after VAT, and VAT is applied on the £100k.
Cheers mate, massive help.
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