October 22nd, 2015

Deposits and VAT – the bad news and the good news

There seems to be quite a bit of confusion and uncertainty about the VAT treatment of deposits.

For example, a wedding photographer might get paid a deposit of £600 for a wedding they’re doing next year.

So, when does it count for VAT? The bad news is that it’s on receipt. And that means that if you’re carefully staying under the VAT threshold by ignoring deposits then you’ll need to do your sums again.

And why is there so much confusion? My guess is that it’s due to the differences between the ‘accounting treatment’ and the ‘VAT treatment’. For your accounts it might be appropriate to only recognise the income from deposits when you do the work. But VAT is very different. The rules say that it counts as a supply when you get the deposit. And that’s that.

And the good news?

Well, if you’re registered for VAT you don’t need to pay the VAT on forfeited deposits.

(The technical reason for this is that VAT is only due on a supply. A forfeited deposit isn’t a supply of anything. It’s compensation – so it’s not VAT’able.)

Say you’ve received a deposit of £600 – ie £500 plus VAT of £100 then you will have paid VAT over when you received the deposit. If the customer then cancels you can make an adjustment on your next VAT return so you get the VAT back again.

If you need any help with this then please don’t hesitate to get in touch.

Are you a wedding photographer? Download our guide to streamlining your business in just seven days here.

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Filed under

Freelancers Limited Companies Photographers VAT


John manages a wide portfolio of owner managed businesses and oversees the smooth operation of the firm’s payroll department.

After obtaining his degree in mathematics from the University of Liverpool, John joined Jonathan Ford & Co in 2004 and qualified as a chartered accountant four years later. John likes to keep abreast of developments in tax and accounting and is responsible for the mentoring of junior staff.

Outside of work, John enjoys powerlifting and is a Liverpool FC season ticket holder.

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