- VAT treatment of deposits is a common area of inquiry and error in the hospitality sector
- Deposits are advance payments made by customers to secure goods or services and can be either refundable or non-refundable
- VAT must be accounted for when a deposit is received or when an invoice is issued, whichever is earlier
- Advance payments require VAT to be paid at the time of receipt or invoicing
- Refundable deposits for returnable goods do not attract VAT unless forfeited
- Non-refundable deposits retain VAT even if the customer cancels
- Continuous services attract VAT with each payment or invoice
- Hotel bookings require VAT on deposits at the time of receipt
- If a deposit is refunded after a cancellation, VAT can be adjusted unless the deposit is non-refundable
- Retained deposits and no-show charges are subject to VAT
- Incorrect VAT accounting on deposits can lead to HMRC penalties and interest on under-declared VAT
- Proper understanding and accounting of VAT on deposits help businesses avoid penalties and ensure accurate financial records
Source: haysmac.com
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
