New HMRC policy for VAT on non-refundable deposits
On 1 March 2019, new rules come into force regarding the VAT charged on non-refundable deposits. Here’s what you need to know:
The current HMRC policy lets businesses treat 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
From 1 March 2019 the HMRC policy will be that VAT is due on all retained payments for unused services and uncollected goods. This is to 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 retained payments.
Credit card guarantees
Where credit card details are taken, but no payment will be taken until the service or goods are due to be used or collected, then VAT is due when the payment is taken.
Action to be taken
- You may want to review your current VAT treatment of deposits to determine whether they will be affected by HMRC’s new policy and update your processes as necessary.
- If you have a finance team, then ensure that they are aware of the change.
You can find more information about the new policy on the gov.uk website.
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