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