Howtoshowadiscountonaninvoice
Where you apply the discount changes the tax. Applying it after tax is the most common way to charge a customer for money they are not paying.
5 minute read · Updated
Short answer
A discount must be applied before tax is calculated, not after — tax is charged on the discounted taxable value. Show it as its own line beneath the subtotal so the taxable value is visible and checkable. Discounts given at or before the time of supply, and recorded on the invoice, reduce the taxable value directly. A discount agreed after the supply generally requires a credit note and has conditions attached, so it cannot simply be applied to a later invoice.
The order of operations
Tax is charged on what the customer actually pays for the supply, so the discount comes first:
- 01Subtotal the lines.
- 02Subtract the discount.
- 03That figure is the taxable value — show it.
- 04Compute tax on it.
- 05Add tax to reach the total.
Applying a discount after tax charges the customer tax on money nobody is paying. It is usually an accident of a spreadsheet's column order, and it is the most common discount error on a hand-made invoice.
Line-level or invoice-level
| Line-level | Invoice-level | |
|---|---|---|
| Applies to | One item | The whole subtotal |
| Use when | One item is discounted | A blanket reduction is agreed |
| Shown as | A reduced rate on that line | Its own line under the subtotal |
| With mixed tax rates | Simple — the line keeps its own rate | Must be apportioned pro rata across the lines |
That last row is the subtle one. An invoice-level discount on an invoice where different lines carry different tax rates has to be spread across those lines in proportion before their rates are applied — otherwise the tax is computed on a value nobody is being charged. The generator apportions it automatically in per-item tax mode.
Before or after the supply
The timing determines whether it can be taken off the invoice at all.
- Agreed at or before the time of supply and recorded on the invoice — reduces the taxable value directly. This is the ordinary case and the one the generator handles.
- Agreed after the supply — generally requires a credit note against the original invoice, and there are conditions attached to whether it reduces the tax. It is not something to net off against a future invoice.
The post-supply case has conditions that depend on what was agreed and when, and on the recipient's credit position. If you are negotiating a retrospective discount, raise it with your accountant before you issue anything.
The reference
Credit note and debit note format
When to issue a credit note versus a debit note, what each must reference, and the deadline after which a credit note can no longer reduce your tax.
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Questions people ask
Before. Tax is charged on the discounted taxable value, because that is what the customer is actually paying for the supply. Applying the discount after tax charges them tax on money nobody is paying, and it is the single most common discount error on a manually prepared invoice.
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