VAT - 23.11.2006

Delaying the tax point

Goods

Recap. The basic rule is that VAT has to accounted for at the time the goods are “made available” (usually delivered) to the customer. However, this is overridden by the actual tax points, which are the earlier of either; (1) invoice date (if issued within 14 days of the basic tax point); or (2) receipt of payment.

Although there is less scope for delaying the payment of VAT on the sale of goods there are still some things that can be done. What are they?

Tip. Under normal circumstances, the VAT invoice has to be issued within 14 days of the goods being delivered to the customer. However, the VATman will normally allow an extension of this to 30 days. You have to write to the VATman and get his permission to do so (he will want a reason why). He will normally accept that the business invoices at the end of the month as a good enough reason.

Issue date. If you do produce your invoices at the end of the month there is another perfectly acceptable method of deferring payment of the VAT. According to the VAT Act 1994 s.4(6) the tax point of an invoice is when the invoice is issued, i.e. sent - not when it is produced. If you produce the invoices on the last day of the month and post them the next day you can move the tax point into the next month. If that is at the quarter end you can defer a third of your output VAT for three months.

Tip 1. To do this you can either have a separate “issued” date shown on the invoice rather than the date it was produced or you can overstamp the invoices with the date they were issued.

Tip 2. Alternatively, you could write to the VATman and ask him for a ruling accepting that invoices are actually issued the day after they are produced.

Services

Recap. With services, the basic tax point is when all the work, except billing, is completed. Again, this is overridden by the actual tax point, which is the issue of an invoice or receipt of payment, if earlier.

Continuous. For businesses that make “continuous supplies of services”, for example accountants, consultants and solicitors, where periodic invoices are issued and payments received, the tax point is the date of invoice or the date of receipt of payment whichever is first.

Tip. Do not issue a VAT invoice. Issue a “request for payment”. Once you have been paid you issue the tax invoice. The tax point will be the receipt of payment.

Construction industry. Remember, building and construction work are considered to be services rather than goods. If you are involved in the construction industry you can use “authenticated receipts” rather than VAT invoices.

Disputes over the value of interim payments are common in this sector so rather than issue an invoice that will be disputed, issue an authenticated receipt showing the value of the work done. Once it has been agreed, the customer authenticates it and returns it to you along with payment so creating a tax point at that later date. There is no need to issue a VAT invoice in these circumstances.

Permission. You do not have to get prior approval from the VATman to use either of the above methods of deferring tax points.