Accounting for input VAT on deposits

[millie]

We require a 50% non-refundable deposit when orders are placed.

The input vat element of the deposit is not accounted for in sage until such times as the invoice is raised (which generally can range from 3 to 9 months later).

I am questioning this with my bookkeeper as I would have thought (though am quiet clueless with these matters!) it should be accounted for when received, and I would actually prefer if this was the case.

Could someone please be kind enough to advise?
And if I am correct, how would she do this in sage instant accounts?

[Global Assistant]

We have a kitchen business and split our payments into 3, 20% deposit, 60% further payment on commencement of works and then the balance on completion. We always account for the VAT as the payments come in and not when the full job is completed - can be 2-3 months from deposit to completion.

I don't know about sage but could you not raise an invoice for each part of the payment rather than just one for the whole job - I would have thought you would have to issue an invoice to your client for their deposit anyway.

[millie]

Many thanks for your reply Katherine.

We sell personalised handmade goods and our clients are all private individuals rather than businesses.

Upon receipt of an order, we produce an order confirmation (which details all items ordered, prices, total cost, deposit received and dispatch dates(s), etc.

Perhaps it would be an option to also raise an invoice for the deposit at this stage, even if it were just an "internal" invoice to get the deposit into Sage.

Definitely something to discuss with the bookkeeper.

[Nilesh Mandvia]

As you are asking for an advance payment, the tax point is whichever occurs first

• the date you issue a VAT invoice for the advance payment
• the date you receive the advance payment

You have to include the VAT on the advance payment on the VAT Return for the period when the tax point occurs -i.e. when you receive the payment.

Also if the customer pays you the balance before the goods are delivered then you have to account for vat at earlier of

• you issue a VAT invoice for the balance
• you receive payment of the balance

So you include the VAT on the balance on the return for the period when the tax point occurs.

You do not need to raise an invoice to account for vat. But however it would make easier to control, track and reconcile.

I hope this helps.

[millie]

Thank you so much Nilesh.

That helps immensely and you have explained it so clearly, I will be showing this to my book keeper tomorrow.

[Paul Norman]

This is a situation common in many high value businesses, such as the motor trade who are usually sitting on big value deposits. You have to account for VAT at the point the deposit is received.

This was a very big issue back in the 90's (when many people were not doing this) so it is a bit imprinted in my brain!