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AR Payment Tolerance creating a VAT entry - incorrectly in UK

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Posted on by Cameron1234

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

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Cameron1234 5 on at

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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

- 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
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YUN ZHU 73,339 Super User 2024 Season 2 on at

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RE: AR Payment Tolerance creating a VAT entry - incorrectly in UK

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

Hope this helps.

Thanks.

ZHU
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Inge M. Bruvik 32,748 Super User 2024 Season 1 on at

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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.