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 

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.

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 and Supplier Accounts

1. Go to AR > Customers or AP > Suppliers.
2. Open the relevant Master Record and go to the Finance Settings tab.
3. Find the Discount Rate. For Customers, these options come from Codes Maintenance. If necessary, select another from the dropdown and click Save.
4. For Suppliers, the Discount Rate is in decimal form (0.05 corresponds to 5%). It applies to all Item Lines. However, you can override it per line at the transaction stage.

Option two: Transaction level

Go to either:

• AR > Item Invoices > New Item Invoice/New Credit Note.
• AP > Item Invoices > New Item Invoice/New Debit Note.

In the additional Details tab, you can add a default discount rate that will be added to all lines on that Invoice or Debit/Credit Note.

The Discount Rate and Amount can then be edited on a per line basis. Discount Rates can also be added to any Iine even if the Invoice or Note does not have an associated rate.

Adjusting the Discount Rate or 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, either:

• Change the Discount % back to what it was before the change to Unit Price.
• 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.

Line Item Level Discounts only serve to reduce the overall Cost of Sales/Sales for that line item and do not raise an additional Discount Transaction.

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

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 GL > General Ledger Accounts > New GL Accounts.
2. In the GL Acc. Name field, enter 'Discount Allowed/Discount Received'. 
3. Click Process.

Step Two: Nominate the GL Account as a System Account

1. Go to Setup > Codes Maintenance.
2.  Go to General > System Accounts.
3. Click on 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

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

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

Creating Payment Discounts

When you raise additional transactions (Type = DP/DS) in Purchases and Sales, they will be posted to the relevant account and allocated against the selected Invoice in the same way as regular Payments/Receipts:

• Discount Inclusive Amount: This is analysed against the Accounts Payable (Creditors) Control Account or the Accounts Receivables (Debtors) Control Account.
• Net 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.

Discount Amounts only can be entered as follows:

1. Go to AP > Payments & Allocations or AR > Receipts & Allocations.
2. Leave the Pay Amt./Receipt Amt. field at 0.
3. In the transaction to which you want to allocate a Discount, enter the Discount Amount.
4. Click Process.

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