Revenue and Customs Brief 13/18 - change to the VAT treatment of retained payments and deposits
Submit Articles Back to Articles
Published 14 December 2018
of this brief
This brief explains HMRC’s new policy on VAT and payments for
unfulfilled supplies which applies from 1 March 2019.
Businesses that retain payments and deposits for goods and services
which customers do not take up.
Following judgements of the Court of Justice of the European Union (CJEU), we have
reviewed our policy on the VAT treatment of payments for unfulfilled
supplies. An unfulfilled supply is where a customer does not use a
service or collect goods that they have paid for.
Our current policy lets businesses treat many payments for services
and part payments for goods, as outside the scope of VAT where the
customer does not:
- use the service
- collect the goods
decisions given after this policy started (Air France-KLM and Firin
make it clear that this treatment must be amended.
When a full or part payment is made on account for a taxable supply,
a chargeable event occurs and VAT becomes due on the amount paid.
If the supply does not take place, the VAT must not be reduced,
unless the payment is refunded. This is because when a customer makes
or commits to make a payment, it is for a supply. It cannot be
reclassified as a payment to compensate the supplier for a loss once it
is known the customer will not use the goods or services.
4. New policy
From 1 March 2019 HMRC policy will be that VAT is due on all
retained payments for unused services and uncollected goods. This will
bring consistency of VAT treatment on all payments for goods and
services where there is an unfulfilled supply.
Where suppliers become aware that a customer has decided not to take
up goods or services after paying, the transaction will remain subject
to VAT. No adjustments or refunds of VAT will be allowed for those
If suppliers find out the relevant goods or services will not be
used or received before 1 March 2019, they may treat the prepayments
under our current policy.
A hotel room is booked on 4 January 2019 for a one night stay on 17
March 2019. The price is £100 plus £20 VAT. The hotel takes
the time of booking. The customer has no entitlement to a refund in the
event of them cancelling or not using the room.
The hotel must account for the VAT when the payment is first made.
If the customer cancels the booking before 1 March 2019, the hotel
may make an adjustment and treat the £20 VAT as outside the scope
If the customer cancels on or after 1 March 2019 or does not use the
room, the hotel cannot adjust the £20 VAT as the new policy will
5. Credit card guarantees
Where credit card details are taken, but no payment is taken until
the service or goods are due to be used or collected, VAT is due when
the payment is taken.
When a customer agrees to pay for a supply of services or goods on a
future date, the payment cannot be reclassified if the supply is
6. Previous VAT periods
Businesses that have not treated payments for unfulfilled supplies
as outside the scope of VAT have applied the law correctly. They cannot
make any adjustment to previous VAT periods to treat supplies in line
with former policy, as no error has been made.
HMRC will change our guidance manuals and public notices before 1
March 2019 to reflect this change.
About the Author
© Crown Copyright 2018.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
Follow us @Scopulus_News
Article Published/Sorted/Amended on Scopulus 2018-12-14 19:00:00 in Tax Articles