Change in System of VAT on Advance Payments In Case No Supply Occurs

Introduction To Changes In VAT System

There are many changes made by HMRC in relation to taxes and the latest change is applied on VAT system on advance payment in case no supply occurs. With effect from 1st March 2019, VAT will be due on all retained payments for unused services & uncollected goods. It will be a big change and it will impact other areas & sectors such as hotels where “No show fee” has been charged, if guest does not arrive at the hotel on the booked arrival date and not even cancel his or her reservation. Management charges on inter-group supplies of services are also one of an example.

Change In System of VAT on Advance Payments In Case No Supply Occurs

Impact On Businesses

The change in the VAT system will impact businesses –
  • Where supply of services are not used by the customer.
  • Where the goods are supplied but customer failed to collect the same.

As per the current VAT rules, no VAT is due on partly payment of a deposit made by the customer or full payment in case no supply has occurred but from 1 March, 2019, VAT will be charged on all retained payments for uncollected goods as well as for unused services.

Decisions Taken By European Court Of Justice

As per decisions taken by European court of justice, it is determined that if partly or full payment for a supply is made, it results in a VAT able event & VAT is due on the amount paid unless it is totally refunded to the customer.

It can be compared to the cases where hotel retains “No show fee” in circumstances such as guest not arrived on the arrival date & didn’t even cancel the reservation but it is treated as tax free. VAT is not considered due in such a case.

Also Read: VAT Registration

When Vat Amount Is Considered As Due

VAT amount is considered as due in cases where supplier is aware that customer has decided that he or she will not take the offer of goods or services after making the payment. VAT is also considered due in case where the credit card details of a customer is taken but payment is not collected until the goods or services are used or received.

In case you are eligible for a refund or want to adjust your VAT - You are not allowed to do it unless the full payment will be refunded to the customer.

Not Impacting Businesses

It will not affect businesses that –
  1. Collect the payment from the customer s in advance and promise them to supply goods & services on the agreed date. The tax for the same is levied on such payments on the basis of earlier between the two –
    1. VAT invoice issued
    2. Receipt of a payment
  2. It also does not affect businesses that receive payments for goods, dispatch them and the goods are then returned back to the customer.


DNS Accountants is one of the leading UK firms having more than 10 years of experience in advising & helping clients in filing VAT returns. If this big change is affecting your business too, kindly get in touch with our VAT experts now to get the best advice. You can call us at 03300886686 or e-mail us at info@dnsaccountants.co.uk

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About the author
Blog Author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.


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