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Re: Prepayments redux

Ed W wrote:
Ed W wrote:
John Bell wrote:
The VAT rules aren't too bad once you get used to them.

 From the UK VAT guide
"14.2.3 Deposits
Most deposits serve primarily as advance payments and will create
tax points under 14.2.2(a) when you receive them."

The general rule is that a tax point (the time at which you need to  
account for the tax) is created a) when you issue a VAT Invoice or b)  
When you receive payment - whichever happens first.

i.e. you have to account for VAT at the time when the prepayment is  
received. This also requires the issue of a VAT Invoice. A credit memo  
would not do this.

I had always read that to mean that when you finally raise the invoice 
the tax point needs to be the tax point as defined by a bunch of rules 
which boil down to the sooner of a) money received and b) invoice 
raised.  I had not read it that the invoice NEEDS to be raised at the 
point you receive the prepayment though?

Ed W


Yeah, check provision 5 on your link. 
"The documents specified in paragraphs (1), (2), (3) and (4) above shall be provided within 30 days of the time when the supply is treated as taking place"

I think this is designed to give some leeway on rearranging the order of events to meet reality.  I guess what they are trying to avoid is people artificially *delaying* the invoice date.  They have a whole bunch of provisions which are designed to bring the invoice date forward in time, and I guess this one is designed to avoid then springing these invoices on people years later.

This is not an official opinion, but the VAT inspectors we had around gave the following top level guidance:

- The intention of the provisions referenced are to bring forward the dates on invoices are far as possible, roughly speaking the tax point date will be the earliest of the payment and the date the invoice is raised
- Additionally they are trying to avoid people incuring invoices and then being presented with them a significant time later, hence the 30 day provision
- The 30 day provision gives some leeway for prepayments to avoid having to raise duplicate invoices constantly
- Where there is a real deposit and a delay before the actual purchase it would generally be correct to raise an invoice against a "deposit" item which was charged at expected VAT rates.  When the final invoice was raised you would simply credit the deposit invoice and net off against the final invoice. 
- However, for shorter gaps between payment and purchase the inspectors didn't see a problem with other sensible internal procedures to track the pre-payment.  Important point though that when the invoice is finally raised it should be for the date the prepayment was taken, not todays date
- I didn't ask, but speculate, that where you use the more common procedure of authorising a credit card and not taking payment immediately, presumably there is not yet a prepayment and so you can delay raising any invoices - however, it would still be useful to track this thing which is very close to a payment through the system and ensure it doesn't get lost or missed

So at least for many smaller companies in the UK - small timing differences between collecting and raising invoices can be handled through internal procedures and there is no requirement for doubling up invoices.  I can't say that I have ever seen ebuyer or amazon do a different process either...

Ed W