I have a query on VAT on deposits. We run a kitchen company and customers pay us a deposit when we close the sale. I have been told that we should not pay VAT on this payment until the kitchen has been supplied and paid in full by the customer as any time before this he could cancel his order and claim his deposit back.
For example our VAT period ends 30th Sept and we have a customer who paid us a deposit on 1st Sept for a kitchen he wants us to supply in November. Theoretically in October he could cancel his order and claim his deposit back, so in effect we are just holding his deposit until November.
We use Sage Instant Accounts and I was wondering how I should record the payment made on 1st Sept so that it does not show on our VAT return for the end of Sept. Or have we got it wrong and should we be paying the VAT now?
I hope this makes sense and any help would be gratefully received!
An advance payment, or deposit, is a proportion of the total selling price that a customer pays before you supply them with goods or services. If you ask for an advance payment, the tax point is whichever of the following happens first:
the date you issue a VAT invoice for the advance payment
the date you receive the advance payment
You include the VAT on the advance payment on the VAT Return for the period when the tax point occurs.
If the customer pays you the remaining balance before the goods are delivered or the services are performed, another tax point is created when whichever of the following happens first:
you issue a VAT invoice for the balance
you receive payment of the balance
So you include the VAT on the balance on the return for the period when the tax point occurs.
This link takes you to the whole page regarding deposits
