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Client fees and VAT forestalling

Client fees and VAT forestalling

We invoice a client, say £1,000 plus VAT.  We charge all the VAT on that invoice but the client pays the balance in installments (say £200 now and another £100 per month for 8 months).

Also some clients pay £100 a month and at the end of each year we knock that off our fees.

How will we be treated for anti-forestalling?  I assume in case 1 we are giving clients over 6 months to pay £300 so they would be caught, but is the rest outside the scope of anti-forestalling?

How about for the second case?  Are the installments treated as including VAT at the relevant rate they are paid?


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29th Sep 2010 09:09

Anti-Forestalling measures

The changes by HMRC were announced in Budget Note 44.  The Finance Bill included provisions to counter schemes that purport to apply the 17.5% rate of VAT to goods and services delivered or performed after 04/01/11. The legislation will provide that in certain circumstances a supplementary charge of 2.5% VAT will be due on supplies of goods and services on which VAT has been declared at 17.5%. This charge will apply where the customer cannot recover all the VAT on the supply and one of the following conditions is met:

the supplier and customer are connected parties;

the supplier, or someone connected with him, funds a prepayment;

an advance VAT invoice is issued where payment is not due in full within 6 months (except for HP invoices);

the value of the supply (and any related supplies) exceeds £100,000 (this does not apply if a prepayment or the issue of an advance VAT invoice is normal commercial practice).

The supplementary charge will not apply to prepaid or invoiced rentals of land, buildings or other assets if the period concerned does not exceed 1 year.

Malcolm McFarlin



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29th Sep 2010 16:29

I'd already seen the 'chapter and verse' though, I was more interested in whether I had interpreted it correctly.

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30th Sep 2010 15:26

Advice from Abbeytax

I'm currently preparing a piece about preparations for the VAT rate change in January and came across a useful guide from Abbeytax.

I raised your point while talking to VAT consultant Mark Burke and he said the anti-forestalling measures are going to affect relatively few people. In your situation, he didn't think the rules would be an issue. "The anti-forestalling rules are about deferred payments to avoid tax. If it can be demonstrated that the deferral is normal practice and not being done as an avoidance measure, then HMRC won’t invoke the anti-forestalling rules," he said.

Full article follows shortly with more comprehensive advice.

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