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VAT Tax Points - Deposits

VAT Tax Points - Deposits

Hi all,

I think I know the answer to this question but would just like to be sure before I advise client!

Client is a wedding photographer. He requires a deposit when he takes the booking and raises the invoice at that point. Eg. Wedding booked in December, total cost £800. Photographer invoices client in March for full £800 but is paid only £200 deposit with the balance being paid in December.

Deposit is non refundable.

I understand that the tax point for the £200 would definitely be March when the invoice is raised but is this also the tax point for the remaining £600 or is this in December? He's approaching the VAT registration threshold so this would be the difference between him registering or not.

If the tax point is March for the full £800 could he get round this by raising two separate invoices? Would the deposit being refundable make any difference?

Many thanks in advance.

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By Ruddles
02nd Mar 2016 13:53

Tax points


If he is not yet registered then the date of the invoice is irrelevant. Tax point will be the earlier of payment and actual date of supply.

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By JimFerd
02nd Mar 2016 14:27

Just tell him not to raise an invoice for the full amount immediately, he could always incorporate some sort of contract into the booking form if he's worried about people pulling out.

I'm just not sure of the benefit of raising the invoice so far in advance of the work being done, if there's no requirement for payment other than the deposit.

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By Ruddles
02nd Mar 2016 14:47

But as I said, raising an invoice for the full amount will not change the VAT position one bit. One benefit of raising a single invoice is that you don't have to raise two.

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By JimFerd
02nd Mar 2016 15:03

He needn't raise an invoice for the deposit though.

Just receive the £200, pay the VAT on it - then raise an invoice for the £800 when the work is done.

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By Ruddles
02nd Mar 2016 15:06

What VAT?

Go and re-read the question.

He doesn't have to, but he can raise an invoice for the full amount now, without any VAT implications.

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02nd Mar 2016 15:13

Maybe my example wasn't the best.

The main issue is when is this income considered part of the taxable turnover for the VAT threshold. My example wasn't great as deposit paid and balance paid were within 12 months of each other but he often takes bookings and deposits more than a year in advance.

The work is obviously seasonal so he could go over the threshold in a 6 month period but then have no sales for the other 6. If we're saying the tax point for the deposit and the balance are the same then this would put him over the threshold but if the deposit's tax point falls more than 12 months before the balance's tax point it will reduce his turnover for the 12 month period that the balance is in and put him below the registration threshold.

Phew I hope that makes sense and thank you for your replies!

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By JimFerd
02nd Mar 2016 15:18

Good good, I'm going to have

Good god, I'm going to have to learn to read.

Completely missed the part where he said he was yet to register. Apologies to all!

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By Ruddles
02nd Mar 2016 15:16

No further comment

See my first response

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02nd Mar 2016 15:26

So...

Thank you for your reply Ruddles but either I'm not understanding properly or it doesn't really answer my question.

At what point is the income considered taxable turnover for reaching the VAT threshold. Would the deposit and balance have the same tax point or should the deposit be considered separately? It makes a huge difference as some deposits are paid more than 12 months before the balance.

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By Ruddles
02nd Mar 2016 15:48

What part of the second sentence of my initial response is unclear?

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By JimFerd
02nd Mar 2016 15:49

It's going to be taxable turnover for VAT threshold purposes at the earlier of:

1) The invoice date

2) The payment date 

3) The date the work is done.

So if you invoice £800 in March, it gets counted in March.

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02nd Mar 2016 15:57

Well

you say tax point will be the earlier of payment and actual date of supply, when you say payment do you mean payment of the full invoice? The order things happen is A. deposit paid B. date of supply C. balance paid. So I'm unclear on what you mean by "payment". There are 2 payment dates and depending on how I interpret your answer I could have tax point at B or at A or at A and B..? 

Thank you for your replies and patience!

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02nd Mar 2016 16:04

Reread the answer posted by Ruddles. If you don't see the answer, read it again.

This case is also relevant:
Bromley Emergency Training and Development Limited (TC01728) [2012] UKFTT 30 (TC)

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By Ruddles
02nd Mar 2016 16:08

No

I mean payment of whatever is paid at the time of payment. Your two tax points are A and B.

Jim - you are wrong. The invoice date is, as I said earlier, irrelevant in this case. Only points 2 and 3 are relevant. Read VATA 1994 s6 - and read it carefully.

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02nd Mar 2016 16:12

Ok so

just to be super clear here, assuming things happen in the order I stated earlier, I will have a tax point for the deposit when it is paid and then another tax point for the balance at the date of supply as this would happen prior to payment of the remainder?

Thanks again.

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02nd Mar 2016 16:15

Sorry Ruddles

you did already say the tax points were A and B, I was too quick to post, ignore my last post!

Thanks all :)

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By Ruddles
02nd Mar 2016 16:16

Super duper clear

Yes

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By JimFerd
02nd Mar 2016 16:29

Cheerfully withdrawn!

I guess I was missing the point that my point 1) should have been "VAT invoice", which is of course impossible if he weren't registered at that point.

Always happy to learn!

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02nd Mar 2016 16:51

ROFL Refer to the first post (of 19)!

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02nd Mar 2016 16:53

Now

Portia Nina Levin wrote:
ROFL Refer to the first post (of 19)!

 

20

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03rd Mar 2016 11:31

post vat reg..

 

note once you decide you do need to be vat reg, based on trading income  - or other needs - whether on FRS or not,

1]

note that prices/ price lists / web etc  will need to be reviewed ie 800 will be  800+ vat [ and deposit of 200 or 200+ vat] as opposed to 200 now and 200incl vat later !!!

2]

also - in the unlikely event of a non refundable deposit being received, but client cancelled the shoot/event, you should review your t&C's to ensure that the deposit equates to a cancellation fee, which would mean that the vat initially charge/ and paid  " could be recoverable "

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