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May 24th 2019

VAT and payments for unfulfilled supplies

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 retained payments.

If suppliers find out before 1 March 2019 that the relevant goods or services will not be used or received, they may treat the prepayments under previous rules which considered such receipts to be 'outside the scope of VAT'.

Revenue and Customs Brief 13 provides the following example:

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 payment at 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 of VAT.

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 apply.

If you have any questions about how this might affect your business, contact us today.


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