VAT on customer prepayments, and whether the VAT element can be used to credit future actual invoices

Hi All.

I have a quick question regarding VAT on customer prepayments, and whether the VAT element can be used to credit future actual invoices so the customer has to part with less cash.

Example
If a customer prepaid £100 + VAT (£120) and an invoice was raised accordingly, but during the month used £200 + VAT (£240) worth of services, and an invoice was raised for £200 + VAT (£240), would the customer be obliged to pay a difference of:

A) £120 (so the full prepayment of £100 + VAT (£120) can be deducted from the actual invoice)
B) £140 (so only £100, and not the VAT element can be deducted from the actual invoice)

Option A obviously means the customer would part with less cash, and is certainly more attractive.

The reason we do things this way is because we ask for prepayments on an as/when basis from less credit-worthy customers but for ease of accounting, we'd like each customer (regardless of whether they are making prepayments) to receive an end of month actual usage invoice.

Thanks in advance.

Comments
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Why invoice?

petersaxton |
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One reason

neileg |

Understood

petersaxton |
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No

neileg |

Not convinced it's a good idea

petersaxton |
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Do you have a better idea?

neileg |

My better idea

petersaxton |
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Deposits

thomas34 |

You don't always have to issue a VAT invoice

petersaxton |
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@peter

neileg |

This is what the link says

petersaxton |
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