Is VAT due when a payment is made or when a service is taken?

[mrochester]

I understand as a customer the payment plus VAT can be made at any time. But for a business, when is the VAT due? Is it when the payment is made by the customer or when the service is taken?

The reason I ask is because I could potentially be in for a partial refund for a service I have paid for but haven’t yet taken depending on what the rules are.

Many thanks.

M.

 

[mrochester]

It depends on what the service is but the general rule is the tax point is created when service is provided. It all depends on the time of supply.

This can then be overridden depending on if any payment has been made prior to the service being provided. If you've already paid and / or received an invoice, the tax point has been created so the VAT is due as of that point.

If the business runs the cash accounting scheme, VAT is due as of when payment is received for almost all cases so the same outcome in this situation.

It shouldn't make any difference for you as a consumer though and the VAT can just be adjusted on a future return if its already been accounted for.

So it's a holiday cottage holiday I'm talking about. The holiday is taking place on 29 August but the balance was paid in full on 12 June. The booking was confirmed by the agent on 17 June.

 

[mrochester]

What are you trying to do or work out?

Assuming it applies to see whether I will be due a partial refund due to the VAT reduction.

 

[mrochester]

If you have paid in full, then it is likely you have received an invoice and according to the link above

Payment or invoice issued in advance of supply VAT is due Date of payment or invoice (whichever is earlier)
Payment in advance of supply and no VAT invoice yet issued VAT is due Date payment received

So in either scenario payment has been received so they will have passed their VAT due date if I read that correctly.

That's what I think it is saying.

 

[mrochester]

The BBC are reporting that the rate cut applies to the following:

"This cut will apply to eat-in or hot takeaway food and non-alcoholic drinks from restaurants, cafes and pubs, accommodation in hotels, B&Bs, campsites and caravan sites, and attractions like cinemas, theme parks and zoos."

So it would seem self-catering cottage accommodation is excluded anyway, assuming that is a comprehensive list.

 

[mrochester]

Yeah, if the invoice was raised in June, then you pay the VAT as it was in June.

Can't see how you can get a refund on it now to be honest.

That’s why I was trying to find out when the business pays the vat due, when the payment is made or when the service is taken.

 

[mrochester]

FYI @mrochester

HMRC has published further guidance on the reduction to VAT:

https://www.gov.uk/guidance/vat-red...lies-that-straddle-the-temporary-reduced-rate

Importantly, suppliers CAN reduce the VAT charged on goods or services where the actual supply is after the reduction to the VAT using standard "special provision" rules.

https://www.gov.uk/guidance/vat-guide-notice-700#changes-in-tax-rates-and-liability

That’s very interesting, thank you.

 

[mrochester]

Having this exact conversation with a place I've booked with over Christmas. The difference is about £500. So far the company letting the property have said they have not worked out what to do. I've paid about a 30% deposit but no invoice has yet been issued.

The have so far said that they have not given it much consideration but believe the relief has been introduced to support businesses hit by COVID. My point is that it is to ensure that during a recession they lower pricing helps ensure full occupancy by reducing the cost to the customer. I was quoted £3800k inclusive of VAT at the time of booking, if they do not pass on the VAT they are in effect changing the price offered after taking a deposit. My logic is that if VAT had been increased the owner would certainly not absorb this and my invoice in November would be at the new higher rate. Frankly this is the position they will be in when they take bookings later this year for next summer and the rate is back to normal.

I’ve got two holidays happening with the vat reduction period, both of which have been paid in advance. I’ll wait for now to see what the two companies involved do... if anything.