# Question: Does settlement discount include VAT?

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## Is there VAT on settlement discount received?

Settlement discount is the same as a cash discount and is a discount granted for paying off a debt early. Settlement discount granted is an expense (the opposite of this is settlement discount received , which is an income for your business). Because settlement discount granted is an expense, we record VAT Input on it.

## Do you calculate VAT before or after discount?

To calculate the VAT on a trade discount, deduct the discount from the net price before the VAT is calculated.

## Is VAT applicable on discount?

In UAE VAT, the value of a supply should be reduced in proportion to discounts made before or after the date of supply. In other words, the VAT will be charged on the value which is arrived after considering the discount.

## How do you calculate settlement discount?

As the customer settled the invoice within 15 days, they can deduct the 2.5% discount. To calculate what this is, take the Net amount figure and multiply it by 2.5% i.e.

## How is VAT discount calculated?

The customer pays the reduced amount, therefore a credit note is issued.

1. The rate of VAT is clearly shown (at 20%)
2. This is 3% of the net figure on the invoice: £255 x 3% = £7.65.
3. The VAT is calculated on the net: £7.65 x 20% = £1.53.
4. This is the amount by which the original invoice has been reduced.
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## What is settlement discount?

Settlement discounts are discounts which are given to a customer for the early payment of an invoice. If a payment is received from your customer within the number of days negotiated then the discount may be deducted from the invoice value.

## What is early settlement discount?

An early payment discount occurs when a supplier offers a percentage reduction on the total invoice value when it’s settled in advance of the payment deadline. For example, a 2% discount for invoices paid within 10 days.

## What is the difference between VAT and discount?

The difference is that the VAT is added while the discount is subtracted. To emphasize, the VAT is added to a base price while discount is substracted from the total price.

## How is trade discount calculated?

If the discount is a percentage, you calculate the trade discount by converting the percentage to a decimal and multiplying that decimal by the listed price. If the reseller is purchasing \$1,000 worth of items at a 30-percent discount, the trade discount would be 1,000 x 0.3, which equals \$300.