A lot of flying schools offer students the option to purchase reduced training rates for an up-front payment. For example, as a school you might offer a 5% discount on student training rates when a block of 10 hours is purchased.
From a tax perspective the "purchase" of a package is a pre-payment and is not liable for VAT at that point. Cash flow is improved because you will only be liable to pay VAT once the flight has been invoiced.
The following describes how best to set up the system when a customer buys a package. As an example, the standard hourly training rate for students is £180. When a student purchases a block of 10 hours, instead of the normal charge of £1,800 we charge £1,710 (a 5% discount).
To take payment, do not create an invoice! Instead, the customer makes a payment of £1,710 using the Make payment button in their Bills & payments tab. If you prefer to take payment direct into the bank, record this from their Bills & payments tab by adding an adjustment once the payment has reached the bank.
Next add a credit to their account from their Bills & payments tab. In this example the student will be invoiced a total of £1,800 once the 10 hours have been flown, so the difference of £90 (1800 - 1710) should be added as a credit. The credit should be made with matching VAT and accounts codes as the training rate set up under Price groups.
If you have a fixed discount (eg 5% when buying a block), you can use the formula below to work out the credit amount to add:
C = d * P / (1 - d)
Where …
- C is the credit amount
- d is the percentage expressed as a fraction, eg 5% would be 5/100 or 0.05.
- P is the amount received from the customer.
Tip: Avoid mistakes by checking the credit amount feels about right. It should be a small fraction of the total payment!
After adding the credit, the student's balance will be higher and they can fly on the standard student prices.