Although one of the “VAT basics”, it is sometimes quite difficult to establish the date for a tax point, and there is a great deal of case law which suggests that this seemingly straightforward exercise can throw up difficulties.
The time at which a supply of goods or services is deemed to take place is called the tax point. VAT must normally be accounted for in the VAT period in which the tax point occurs and at the rate of VAT in force at that time. Small businesses may, however, account for VAT on the basis of cash paid and received.
Although the principal purpose of the time of supply rules is to fix the time for accounting for, and claiming VAT, the rules have other uses including
- calculating turnover for VAT registration purposes
- establishing the period to which supplies (including exempt supplies) are to be allocated for partial exemption purposes, and
- establishing when and if input tax may be deducted
The tax point for a transaction is the date the transaction takes place for VAT purposes. This is important because it crystallises the date when output tax should be declared and when input tax may be reclaimed. Unsurprisingly, get it wrong and there could be penalties and interest or VAT is declared too early or input tax claimed late – both situations are to be avoided, especially in large value and/or complex situations.
The time of supply rules
Basic tax point (Date of supply)
Goods
The basic tax point for a supply of goods is the date the goods are removed, ie; sent to, or taken by, the customer. If the goods are not removed, it is the date they are made available for his use.
Services
The basic tax point for a supply of services is the date the services are performed.
Actual tax point
In the case of both goods and services, where a VAT invoice is raised or payment is made before the basic tax point, there is an earlier actual tax point created at the time the invoice is issued or payment received, whichever occurs first.
14 Day Rule
There is also an actual tax point where a VAT invoice is issued within 14 days after the basic tax point. This overrides the basic tax point.
Continuous supply of services
If services are supplied on a continuous basis and payments are received regularly or from time to time, there is a tax point every time:
- A VAT invoice is issued
- a payment is received, whichever happens first
Deposits
Care should be taken when accounting for deposits. The VAT rules vary depending on the nature of the deposit. In some circumstances deposits may catch out the unwary, these could be, inter alia; auctions, stakeholder/escrow/solicitor accounts in property transactions, and refundable/non-refundable deposits. There are also other special provisions for particular supplies of goods and services, for eg; TOMS.
Summary
The tax point may be summarised (in most circumstances) as the earliest of:
- The date an invoice is issued
- The date payment is received
- The date title to goods is passed, or services are completed.
Some brief examples:
| Situation | Tax point |
| No invoice needed | Date of supply |
| VAT invoice issued | Date of invoice |
| VAT invoice issued 15 days or more after the date of supply | Date the supply took place |
| Payment or invoice issued in advance of supply | Date of payment or invoice (whichever is earlier) |
| Payment in advance of supply and no VAT invoice yet issued | Date payment received |
There are certain exceptions, so care should be taken when establishing a tax point.
Planning
Tax point planning can be very important to a business. the aims in summary are:
- Deferring a supplier’s tax point where possible
- Timing of a tax point to benefit both parties to a transaction wherever possible
- Applying the cash accounting scheme (or withdrawal from it)
- Using specific documentation to avoid creating tax points for certain supplies
- Correctly identifying the nature of a supply to benefit from certain tax point rules
- Generating positive cashflow between “related” entities where permitted
- Broadly; generate output tax as early as possible in a VAT period, and incur input tax as late as possible
- Planning for VAT rate changes
- Ensure that a business does not incur penalties for errors by applying the tax point rules correctly.
Getting a tax point wrong by even one day can be very costly. This is particularly relevant in respect of property transactions. Also, a significant savings may be made by careful tax point planning.
In my next article I shall look at how the tax point rules may be used for beneficial VAT planning in a specific example.
Our company is planning to provide car parking facilities. We will receive bookings in advance for parking in future too.
The query is on bookings for future parking, for example for parking in January 2017. Our Accountant wants to show such funds received under “Amounts Received on Account” and shows it under Current Liabilities and account for VAT only when the service is actually provided. At that time, the amount will be transferred from Current Liabilities to Sales and VAT Invoice will be issued.
His logic is that VAT is payable on sales and not on Liabilities. If the booking is cancelled before the parking date then the whole amount is repaid and therefore it is a liability and not sales.
I think that if we bank the money received in advance in a “Client Account” and transfer it our current account when the service is completed and invoice is raised, then may be the VAT should be paid to HMRC at that time and not when the funds are deposited in Client Account.
Your comments please.
Thank you.
A supply is deemed to be made when a payment in respect of it is received. It does not matter what accounting treatment is applied to this income. If it is deemed a s a deposit, then the rules are here https://www.gov.uk/guidance/vat-instalments-deposits-credit-sales but it is unlikley to defere the tax point.
Kind regards
http://www.marcuswardco