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Suggested answer

AR Payment Tolerance creating a VAT entry - incorrectly in UK

Posted on by 5

Hi,

We have noticed that when a payment tolerance is triggered on an AR receipt (not to be confused with a payment discount) the entry is calculating the VAT portion and booking this to the VAT account.

Example:

Sales Invoice £1000

Payment received £988

Shortfall £12

Payment tolerance accepted and corresponding entry:

£10 to Payment Tolerance (P&L)

£2 VAT recovered

There should be no VAT recovered on payment tolerance bookings. VAT should only be recovered on payment discounts (settlement/prompt payment discount etc.) or where aged AR is written off inline with HMRC guidance. The Payment discount VAT recovery is correctly working.

Does anyone know how we 'switch off' the VAT recovery on Payment tolerances? Unfortunately our D365 partner doesn't know. 

Thanks all

  • Cameron1234 Profile Picture
    Cameron1234 5 on at
    RE: AR Payment Tolerance creating a VAT entry - incorrectly in UK

    Thank you Zhu and Inge for your suggestions. I have

    - checked the G/L account code used for Tolerances and it is not set to calculate VAT - its empty for VAT Business Posting Group and VAT Prod Posting Group

    pastedimage1676368799013v1.png

    - Checked Customer Posting Groups are correctly set up with payment disc Debit and Credit Acc.

    - On Vat Posting setup - amended off and on the 'Adjust for Payment discount' tick box

    When the tick box is checked the VAT calculates on both genuine payment discount incurred and for payment tolerances. It should only calculate VAT for the genuine payment discount transactions. No VAT should be calculated on the payment tolerances.

    When the tick box is unchecked the VAT does not calculate for either, leaving recoverable VAT unrecovered on the genuine payment discount transactions.

    Any other suggestions would be great. Thank you

     

  • Suggested answer
    YUN ZHU Profile Picture
    YUN ZHU 73,696 Super User 2024 Season 2 on at
    RE: AR Payment Tolerance creating a VAT entry - incorrectly in UK

    Hi, It may be a setup problem, please check the following settings.

    pastedimage1676335234812v1.png

    pastedimage1676335263782v2.png

    Hope this helps.

    Thanks.

    ZHU

  • Suggested answer
    Inge M. Bruvik Profile Picture
    Inge M. Bruvik 32,748 Super User 2024 Season 1 on at
    RE: AR Payment Tolerance creating a VAT entry - incorrectly in UK

    The G/L account that is used for posting the payment tolerance should be set up to not calculate VAT. You may have to create a separate G/L account for that purpose.

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