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PBR 2008: VAT rate change – the taxpoint rules

25th Nov 2008
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For many businesses implementing the new standard rate of VAT it will be necessary to establish the tax point applying to the supply in order to check which rate of VAT should be applied. There are, however, some optional rules which can be applied when the VAT rate reduces so businesses and their advisers may also wish to check these out. This is in the detailed article on change of rate and is also covered in VAT Notice 700 at section 30. The taxpoint rules are explained in VAT Notice 700 at sections 14 and 15. This is also explained in the HMRC technical guidance for businesses at Annex B.

The basic taxpoint

All supplies have a basic taxpoint and in many case this will be the taxpoint adopted for the supply. When goods are supplied, the basic taxpoint is the time when the goods are appropriated to the customer’s order. Normally this means when they are collected, delivered or made available to the customer.

When services are supplied, the basic taxpoint is the date on which the services are performed.

The taxpoint defaults to the basic taxpoint unless one of the following situations arises.

  • Prior invoice or payment
    The issue of a tax invoice or the receipt of payment before the supply is made (according to the basic taxpoint rules) triggers a taxpoint earlier than the basic taxpoint. The actual taxpoint is the earliest event. So if a tax invoice is issued first, then the actual taxpoint is before the basic taxpoint.
  • Generally speaking this means that a deposit against a future supply creates a taxpoint when paid. Where a deposit is only held against damage to hired goods it is not payment for a supply, and therefore does not create a taxpoint.

  • Invoice within 14 days
    Businesses which invoice within 14 days of the basic taxpoint are able to use the date of the invoice for taxpoint. This simplifies VAT accounting when invoicing is done promptly. It is possible to extend this 14 day period to 28 days in special situations, but businesses will need to ask HMRC for permission to use this rule.
  • Continuous supplies
    Where supplies are made continuously, such as accountancy and tax advice, a taxpoint is created each time cash is received or a tax invoice is issued. So where payments on account are received by a firm of accountants, the VAT rate can be determined by reference to the dates of payment, provided no invoice has already been issued. Where a “request for payment” has been issued, provided this is not a tax invoice no taxpoint has been created, and the time of supply is determined by the date of payment.

    In addition, an annual invoice issued in advance (but not more than a year in advance) for payment at pre-arranged intervals (for example, monthly by standing order) can take the taxpoint as determined by the date of payment rather than the invoice date. In this case, an amending credit note will be needed to correct the VAT on the initial invoice.


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