What is the tax point for a transaction including VAT?

The tax point, or ‘time of supply’, for a transaction is the date the transaction takes place for VAT purposes.

The tax point is important because it will tell you which VAT period a transaction belongs to and on which VAT return to include the transaction. The tax point must be shown on a VAT invoice.

Generally, you must pay or reclaim VAT in the VAT period in which the time of supply occurs (usually quarterly), and use the correct rate of VAT in force on that date. This means you’ll need to know the time of supply/tax point for every transaction so you can put it on the right VAT Return. You cannot delay accounting for VAT until you have received payment from a customer.

The tax point will vary depending on the circumstances.

One sale could give rise to two or more tax points.

For example, a customer may pay a deposit in advance and also make a final payment after the invoice has been received.

Assuming that the invoice is a VAT invoice and has been issued within the correct time period of 14 days after the date of supply, the tax points will be:

1. the date the payment was received, for the deposit in advance, and
2. the date of the invoice, for the final payment.

For example, Vicky is the owner of a hairdressers and has recently ordered a range of equipment to refurbish her salon.

Vicky paid a deposit of £300 on 2 April.

The equipment was delivered on 17 April and a VAT invoice for £2,400 (including VAT of £400) was issued by the supplier on 18 April.

Vicky paid the balance of £2,100 on 20 April.

The tax points will be :

1. the date the payment was received (2 April) for the deposit in advance (£300), this includes VAT of £50,
2. the date of the invoice (18 April) for the final payment of £2,100 (as this was invoiced within 14 days of the date of supply), this includes VAT of £350.