COVID-19 - VAT Tips - Think Smart on Tax Points

May 2020

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Getting the most from the tax-point rules

In certain circumstances, the VAT legislation can be used legitimately to defer or postpone the date VAT becomes payable to HMRC...

Invoices - the 14 day rule

For supplies made within 14 days of the VAT quarter end, a business may legitimately delay the tax due date simply by waiting until the start of the next month to issue their invoice. Note that a payment received in advance of delivery of goods or services or an invoice being issued will always create a tax point in its own right.**

Let's assume however that timely payers are a rare commodity.  A business delivering goods to a client on 28 April 2021 has 14 days to issue an invoice. Failure to issue an invoice within the 14 day period will fix the tax-point at 28 April but an invoice issued on 11 May 2021 would create an actual tax point at this later date.

Significantly, if that business's quarter end is April it may postpone the output tax due on the supply until September 7 simply by issuing the invoice in May so long as the invoice is issued within 14 days of the delivery.

**Payment in advance of an invoice being issued assumes that the goods or services have not been delivered / completed **

Continuous supplies of services

Where a contract specifies that services are provided on an ongoing basis e.g... construction services, special tax-point rules apply

For continuous supplies of services, a tax-point is created by the earlier of receipt of payment, or the issue of an invoice.

Consequently, suppliers of such services can delay tax due dates by issuing documents to clients which fall short of being a VAT invoice proper.

Issuing a request for payment or a demand rather than an invoice will ensure that VAT only becomes due in the VAT period in which the payment is received.

Note that not all services that are billed on a monthly or periodic basis will necessarily qualify as 'continuous supplies of services'.


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