What is one way to ensure the VAT charged is the correct amount when offering prompt payment discounts?

Issuing an invoice for the full amount, along with a credit note if the discount is taken up, ensures that the VAT charged is accurately calculated based on the total value of the sale before any discounts. This approach aligns with VAT legislation, which typically requires VAT to be charged on the full amount initially, regardless of any discounts that may be applied later.

By providing a credit note for the discount if the customer pays promptly, the business can adjust the VAT accordingly at the time of the discount. This maintains compliance with VAT regulations, ensuring that VAT is reported correctly based on the actual cash received. Consequently, this method supports proper bookkeeping and VAT accounting practices, allowing for an accurate declaration of VAT in the business's tax returns.

Issuing a revised invoice after payment could lead to confusion about the original VAT charged and complicate the accounting process. Providing two separate invoices could also confuse customers and complicate the tax assessment. Requiring pre-payment before issuing an invoice may not be feasible or acceptable in many business practices and does not directly address the VAT calculation issue.