As we know HMRC sets out rules for almost every scenario when it comes to VAT. The rule book is HUGE, trust me!
The tax point of an invoice isn’t always simply the date that the invoice is raised.
Depending on the nature of the transaction, you may need to use a different date on your invoices which will affect the VAT quarter your invoice gets included in.
What is a Tax Point?
A tax point is the date that VAT falls due on a product or service that has been sold.
Sometimes in business transactions aren’t straight-forward – they may be broken down into phases or there may be delays between closing off a project, delivering an item and raising an invoice.
HMRC sets out rules determining what date you must use as the tax point on an invoice. That means it can alter which VAT quarter affecting which VAT quarter a sales invoice gets included in.
Here are the most common scenarios and how to determine the tax point for each:
- Accepting cash, no invoice needed, the tax point is the date of supply**;
- VAT Invoice issued 15 days or more after date of supply **, the tax point is the date the supply took place;
- Payment or invoice issued made in advance of supply, the tax point is the date of payment or invoice whichever is earlier;
- Payment in advance of supply and no VAT invoice yet issued, the tax point is the date payment was received.
**Date of supply means:
- for goods: the date they were sent, collected or made available to the customer;
- for services – the date the work is completed
A self-employed gardener orders new some new equipment, at a total cost of £2,500 plus VAT.
They pay a deposit of £500 and pay the balance upon delivery.
In this scenario there are two tax points:
- The date the deposit is paid, which includes VAT of £83.33
- The date that the goods are delivered, which includes VAT of £416.67
The supplier of the gardening equipment would need to include the two amounts of VAT in the VAT quarters they fall on an individual basis.
VAT Tax Point and the Cash Accounting Scheme
Due to the nature of the VAT Cash Accounting Scheme, the tax point is always the date the payment is received.
New Here? Learn how to set up the financial side of your business with these easy to understand guides and resources:
- Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
- Tax Records and Bookkeeping – Understand what tax records you’ll need to keep and how to set up your own bookkeeping system;
- Self Employment Taxes Explained – Learn what taxes you’ll pay, how much and when;
- VAT Guides – From registration to de-registration, VAT schemes and thresholds, these guides will take you through the basics every UK small business owner needs to know;
- Invoice Template – Free template and step-by-step guide so you can get paid by your clients.