Payment discount functionality enables Sales invoices which are settled where payment settlement discount applies to recover attributable VAT. Unfortunately when this functionality is enabled in Dynamics BC 365, the posting also recovers VAT on any residual balance that is written off to payment tolerance accounts. This is non UK VAT compliant. Significant risk that users will inadvertently switch on the Adjust for payment discount functionality (which is excellent and a must have) and then also recover VAT on payment tolerances where no VAT should be recovered.

Microsoft need to ensure VAT in recovered on payment discounts through automatic functionality, but ensure VAT is not recovered on payment tolerances automatically and that the default for non payment discount is 100% to tolerance posting accounts.

Suggesting that UK users turn off the functionality and deal with settlement payment and tolerances manually would be very inefficient and a significant backwards step.

The issue needs to be resolved to account for both elements in an HMRC compliant process