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bigduckontax, Accountant
Category: Tax
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Is VAT declarable if you have only received a deposit on an

Customer Question

is VAT declarable if you have only received a deposit on an invoice?>
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.

If you have received income which will bear VAT in the long term, and a deposit on an invoice is exactly that, then you must slice out the VAT element and post it in your output tax ledger heading on receipt. I ran an exhibition company once and those booking stands made a deposit. I then raised the invoice for the stand, adding VAT and then deducting the deposit from the sub-total. The deposit was posted to the books of account as follows [say a GBP 120 deposit with the prevailing rate of VAT 20%]:

Debit Bank/Cash 120; Credit, Stand Rentals 100 Output VAT 20.

I do hope that my reply has been useful.

bigduckontax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Thank you.

If I explain the exact situation you might be able to clarify further.

We sold a large piece of equipment to a customer. He made a deposit to secure the equipment assuring us that he would settle the balance within a week. 1 month later he had not paid so I secured hire purchase finance for his and credited the initial invoice and raised a further invoice to the finance company. However because he did not pay the initial payment for a further month, the finance company asked me to credit the invoice again and raise a final invoice in November. This was a vat quarter later than when the initial invoice was raised. The HMRC are claiming that I should have declared all the output VAT in August the date when the first invoice raised. I declared it in the November the date when the final invoice was raised and settled. ??

Expert:  bigduckontax replied 2 years ago.

Unless your organisation is using the cash accounting system [unusual for a big business] ie VAT paid on each cash receipt, I regret to have to tell you that the line taken by HMRC is correct.

I know it is a bit of a pest from a cash flow point of view, but I regret that is how VAT works.

I am so sorry to have to rain on your parade.

Expert:  bigduckontax replied 2 years ago.
I am sorry if I misled you in my original answer. I should have mentioned that exhibition company I was running was on cash accounting.
Customer: replied 2 years ago.

thank you - not what i wanted to hear but at least you clarified it for me.


Expert:  bigduckontax replied 2 years ago.

Thank you for your support.

Always bear in mind Benjamin Franklin's dictum that in life there are but two certainties, death and taxes!