In the world of VAT, the Tax Point, or Time of Supply, is important. Yet I frequently come across businesses who do not appreciate its significance. In the week of writing this, I saw an invoice whose tax point was wrong by 18 months!
The Tax Point is important, as it determines:
The rate of VAT to be charged on a supply; and
The VAT Return on which that VAT is to be accounted for, whether output tax or input tax.
For a business or charity subject to partial input tax recovery, it can also affect the proportion that is recoverable.
This article is a brief introduction to the issue. There are, as you might expect, some specific rules for particular situations. They will be the subject of later articles.
Essentially the regulations provide for a Basic Tax Point (BTP). In some circumstances, this is over-ridden, such that another date becomes the Actual Tax Point (ATP).
Basic Tax Point
The BTP is:
For a supply of goods, the date those goods are collected or delivered, or otherwise made available to the customer;
For a supply of services, when the services are completed (leaving aside minor administrative activity, such as invoicing).
Actual Tax Point
The BTP is over-ridden if:
A payment is received before the BTP; or
A Tax Invoice is issued either before the BTP, or within 14 days after the BTP. (This is called the 14 day rule.)
This date becomes the ATP.
[Regulations require that a Tax Invoice, if required, has to be issued within 30 days of the BTP.]
[Regulations provide that a Tax Invoice is required to show a Tax Point AND an Invoice date.]
How do I square the 14 day rule with my usual practice of issuing monthly Tax Invoices?
The answer is the Accommodation Tax Point. This allows a taxpayer to issue invoices outside of the 14 days, and still use the invoice date as the ATP. If you wish to take advantage of this ‘concession,’ you should seek permission from HMRC. (In practice, HMRC seem to allow monthly invoices without challenge.)
Continuous Supply of Services
Where services are provided, and invoiced periodically, the ATP is the earlier of:
The date payment is received; and
The date of issue of a Tax Invoice.
This applies, for example, to broadband, and legal services.
Legislation & Guidance
For your reference:
For BTP and ATP, VAT Act 1994, s6.
For continuous supply of services; regulation 90.
For Tax Invoices; regulations 13 & 14.
HMRC Notice 700, chapters 14 & 15.
Internal Guidance is at VATTOS4000, 5000, and 6000.