Introduction

For advice regarding UK taxation, see:

• Charge, reclaim and record VAT: Charging VAT - GOV.UK (www.gov.uk)
• Business promotions (VAT Notice 700/7) - GOV.UK (www.gov.uk)

In general, Discounts and Rebates will have both Tax and Ledger implications. For each that you make, ask the following:

• Does it reduce the amount you owe/are owed according to the Ledger?
• Is it a separate Cash/Bank transaction that does not affect the Debtor (A/C Receivables) or Creditor (A/C Payables)? 
• How does it affect Purchase/Sales Analyses reports and Stock (Inventory) positions?

See:

Sales Item Invoices / Credit notes (3.2) - AIQ Academy

Sales Recurring Invoices (3.3) - AIQ Academy

Sales Batch Invoices Credit Notes (3.4) - AIQ Academy

Sales Receipts and allocations (3.7) - AIQ Academy

Purchase Item Invoice (4.2) - AIQ Academy 

Edit and Credit Purchase Item Invoice (4.3) - AIQ Academy

Emailing Supplier Remittances (4.12) - AIQ Academy
  

Creating Purchase Item Debit Notes 

Types of Discounts

Discounts are dependent on the type of Transactions entered into the Supplier(Vendor)/Customer Account. 

Two types of Discounts are available in the System:

• Discount opportunities presented at Invoice Line Item level: 
  • Debit Notes which are Supplier (Vendor) originating Credit Notes.
  • Credit Notes which are Supplier (Vendor) originating Debit Notes.
• Discount opportunities presented on Payment/Funds Receipt entry.

Invoice/Order Discounts

You can apply Discounts to Invoices at Invoice Line Item level in two ways:

• Using a Discount Rate (%) applied to any or all the Lines on the Invoice or Credit Note.
• Using a discrete Discount Amount on each of the Item Lines.

Viewing and editing the Discount Rate

There are two places to view the Discount Rate.

Option One: Customer Accounts

1. Go to Sales > Customers or Purchases > Suppliers. 
   
   
2. Delete

   Info: Our New Look

   If you are using our new look navigation, go to the AR tab in the new sidebar and select Customers:

   
   Or go to the AP tab in the new sidebar and select Suppliers:

   
   

3. Click your customer code to open their Master Record. 
4. Find the Discount Rate in the Finance Settings tab, under Pricing & Discount Settings. 
   
   The Discount Rate is in decimal form (0.05 corresponds to 5%). It applies to all Customer Orders and Credit Notes for all Item Lines. However, you can override it later at the Transaction entry stage (Line by Line).
    

Option two: Item Invoice/Credit Note/Debit Note

Go to either:

• Sales > Item Invoices > New Item Invoice/New Credit Note > Additional Details.
• Purchases > Item Invoices > New Item Invoice/New Debit Note > Additional Details.
  
  Delete

  Info: Our New Look

  If you are using our new look navigation, Item Invoices can be found in the AR and AP tab in the new sidebar. Hover over the plus icon and select the required transaction type:

  

  

  
  

It will apply to all Lines on that Invoice or Debit/Credit Note only. You can override Discount Rates or Amounts at data entry stage for each Invoice Line. You can also add Discount Rates to any Invoice or Order Line even if the Invoice or Debit/Credit Note does not contain any.
 

Calculating the Discount Amount

If you use a Discount Percentage, then calculate the Discount Amount as follows:

• Initial Unit Price * Discount Percentage = Discount Amount. 

If you change the Unit Price to generate a new Net Value, the Discount Amount will remain unchanged while the Discount % Rate will recalculate. 

If you want the original Discount % to still apply to the newly calculated Net Amount:

1. Change the Discount % back to what it was before the change to Unit Price.
2. Change the Discount Amount. Doing this will recalculate the Discount %.

If you want to increase or decrease the Discount on a single individual line, you must manually adjust the % Rate or the Discount Amount on that line.
 

Discounts and tax

When you enter a Discount at Line-Item level, it will carry the same Tax Rate as that of the Line item itself. This reduces the total price of the Line Item as well as the Tax Amount.

These postings will affect the value of Purchases/Sales Analyses but will not have an impact on the Stock levels.

Payment Discounts

Setting up a GL Account for Payment Discounts

This type of discount is similar to an early payment discount. Payment Discounts relate to the overall Invoice. This means that you cannot analyse the Discount against a specific Cost/Sales Account in the General Ledger as Line Items could have different Cost/Sales GL Codes. Instead, you have to set up a system Account, called Discount Received/Allowed.

Step One: Set up a GL Account called Discount Received/Discount Allowed.

1. Go to General > General Ledger Accounts > New GL Accounts. 
   
   
2. Delete

   Info: Our New Look

   If you are using our new look navigation, GL Accounts can be found in the GL tab in the new sidebar. Hover over the plus icon to select New GL Account:

   

   
   

3. In the GL Acc. Name field, enter 'Discount Allowed/Discount Received'. 
4. Click Process.

Step Two: Nominate the GL Account as a System Account

1. Go to Setup > Codes Maintenance > General > System Accounts.
   
   
2. Delete

   Info: Our New Look

   If you are using our new look navigation, Codes Maintenance can be found under Setup in the new sidebar:

   
   

3. Click Add New System Account.
4. In the Linked GL Account field, select the Discount Allowed/Discount Received Account you set up previously and complete the other details.
5. Click Save.

Ledger and Tax Implications

While these types of Discounts do affect the Ledger, there are no Tax implications unless you are on a Cash Reporting basis. The tax is calculated from the Invoices and Debit/Credit Notes rather than the Payments or Receipts.
 

There are also no implications in terms of Purchases/Sales Analyses or Stock.
 

Creating Payment Discounts

You can raise additional transactions (Type = DP/DS) in the Accounts Payables/Receivables Ledger. They will automatically be posted to the Supplier (Vendor)/Customer Account and allocated against the selected Invoice in the same way as normal Payments/Receipts:

• Discount Inclusive Amount: This is analysed against the Accounts Payable (Creditors) Control Account or the Accounts Receivables (Debtors) Control Account.
• Nett Payment/Receipt: This is posted to the selected Bank Account General Ledger Code.
• Discount: This is posted to the Discount Received/Allowed General Ledger Accounts.

You can also use this facility to enter a Discount Amount only:

1. In the blue banner, go to Purchases > Payments & Allocations or Sales > Receipts & Allocations.
   
   
2. Delete

   Info: Our New Look

   If you are using our new look navigation, Payments and Allocations can be found in the AP tab in the new sidebar:

   
   Receipts and Allocations can be found in the AR tab:

   

   
   

   
   

3. Leave the Pay Amt./Receipt Amt. field blank.
4. Select the Transaction against which you want to allocate the Discount.
5. Enter the Discount Amount against that Transaction.
6. Click Process.

Rebates and other Commercial Arrangements

Examples include: 

• Long Term Agreement
• Incentive Payments
• Receipts
• Supplier (Vendor) supports a Promotion
• Coupons and Vouchers
• Free Gifts of Product or Services
• Loyalty Cards