Q&A: VAT time of supply and tax points

Croner VIP Tax Team

In this week’s Q&A, Joshua Hamley Deane, adviser at Croner VIP Tax Team, explains the difference between basic and actual tax points under VAT time of supply rules.

Q. My client is confused about how ‘tax points’ work. They understand the need to account for VAT when they make a sale, but do not know how to determine the exact date to report the VAT to HMRC. What are the rules for ‘basic’ and ‘actual’ tax points and how do deposits or invoicing affect this?

A. The time of supply - commonly referred to as the tax point - is the legal date when a transaction is treated as having taken place for VAT purposes. A VAT-registered business must account for VAT, at the relevant rate, in the prescribed period in which the tax point occurs. There can be a basic tax point and an overriding actual tax point.

1. The basic tax point is the default time of supply under the law and is determined as follows.

For goods: the date the goods are sent to or taken away by the customer. If the goods are not sent or taken away (such as assembly on-site), it is the date they are ‘made available’ for the customer to use.

For services: the date the service is physically performed, which is normally taken as the date when all the work is completed except for invoicing.

2. An actual tax point overrides a basic tax. An actual tax point is created if your client receives a payment, or issues a VAT invoice, before the basic tax point above occurs. The actual tax point is the date of the invoice or the date a payment is received, whichever happens first, or if your client issues a VAT invoice up to 14 days after the basic tax point. The date of issue of the invoice becomes the actual tax point for that supply.

If your client issues a VAT invoice more than 14 days after the basic tax point without prior HMRC approval, the tax point will revert to the basic tax point. Note that businesses can apply to HMRC for an extension to the 14-day limit, which is helpful if they routinely perform monthly billing.

3. Deposits are advance payments for a future supply to be made. As a result, receiving a deposit creates an actual tax point and output VAT must be accounted for as set out in point 2 above.

There can be different types of deposit, eg, security deposits and stakeholder deposits, which can affect the above so further detail may need to be sought.

In summary

Firstly, it is important to look at when the goods were delivered or a service was completed (basic tax point).

If you receive any money, or issue a VAT invoice before this date, the earlier date is the actual tax point.

If the VAT invoice is issued within 14 days of the basic tax point, the invoice date is the actual tax point.

However, if the VAT invoice is issued later than 14 days without an extension, then it defaults back to the basic tax point.

Need help with your complex tax queries?

Contact our specialist tax advisory and HMRC enquiry service at Croner VIP Tax Team