An amount allowed as a reduction in price when goods are supplied to other businesses. Trade discount is not allowed when the goods are sold on to the general public. Purchases are recorded in the books of account net of trade discount.
For example, if you or I purchase a bathroom suite it may cost £750. When Mr Tapp the local plumber purchases the same type of bathroom suite to install in a customer’s bathroom, he might only pay £500. The difference is £250 trade discount. VAT is calculated on the net amount of Mr Tapp’s purchase, i.e. on £500.