When Is VAT Due? Explaining Tax Points and Due Dates

Value Added Tax (VAT) is a consumption tax applied to goods and services at each stage of the supply chain, from production through to the point of sale. Unlike a sales tax, which is collected only at the final retail stage, VAT is levied on the value added at every step of manufacturing and distribution. For businesses, understanding precisely when VAT becomes due is important for accurate compliance, proper invoicing, and effective cash flow management.

Understanding the Tax Point

The “tax point,” also known as the “time of supply,” is the specific date when VAT legally becomes chargeable on a transaction. This date determines the VAT period in which the tax must be reported and accounted for. Establishing the correct tax point dictates when a business must declare output VAT on its sales and when it can reclaim input VAT on its purchases.

For a supply of goods, the basic tax point occurs when the goods are physically removed, delivered to the customer, or made available for their use. For example, if a furniture store delivers a sofa to a customer’s home, the tax point for that sale is the date of delivery. In the case of services, the basic tax point is the date the services are performed or completed. A consulting firm completing a project for a client would have the tax point set on the project completion date.

This basic rule establishes the default moment VAT is triggered for a specific supply. It serves as the starting point for determining VAT obligations before any other events or conditions might alter it. The tax point ensures that VAT is accounted for in the appropriate period, aligning with the actual economic activity.

Modifying the Tax Point

While the basic tax point provides a default rule, certain events can modify or override it, creating an “actual tax point” that may be earlier than the basic one. These modifications are important for businesses to manage their VAT accounting.

Issuing a VAT invoice before the goods are supplied or services are completed can advance the tax point. If an invoice is issued within a specific period after the basic tax point, the invoice date becomes the tax point. For instance, if services are completed on March 25th but the invoice is issued on March 28th, the tax point would be March 28th. However, if the invoice is issued significantly later than the supply date, the basic tax point remains the date of supply.

Receiving payment, or part payment, before the goods are supplied or services are completed also creates an earlier tax point for the amount received. If a customer pays a deposit for an upcoming service, VAT becomes due on that deposit amount at the time it is received.

For continuous supplies of goods or services, such as utility bills or subscriptions, VAT becomes due periodically rather than at a single event. The tax point for these ongoing supplies is created each time a VAT invoice is issued or a payment is received, whichever occurs first.

VAT on imported goods is due at the point of importation or entry into a country. This tax is paid alongside customs duties.

Some businesses may operate under specific VAT accounting schemes, which can also modify the tax point. For example, under a cash accounting scheme, VAT becomes due when payment is received from the customer, rather than when an invoice is issued. This scheme can offer cash flow advantages, as businesses do not pay VAT until they have collected the money from their sales. However, this also means input VAT can only be reclaimed once suppliers have been paid.

VAT Return Periods and Payment Deadlines

The “tax point” defines when VAT is due on an individual transaction, distinct from the “payment deadline,” which refers to when the total collected VAT for a period must be remitted to the tax authority. Businesses are required to aggregate their VAT liabilities and submit VAT returns on a regular basis. These reporting periods are quarterly, though some businesses may have monthly or annual reporting obligations depending on their turnover.

A VAT return period encompasses all transactions for which the tax point falls within that specific timeframe. For instance, if a business files quarterly returns, all VAT due on transactions with a tax point within that three-month period must be included in that return. This systematic reporting allows tax authorities to track and collect VAT efficiently.

Payment deadlines are set a certain number of days after the end of the VAT return period. For example, a deadline might be one month and seven days after the end of the accounting quarter. This grace period allows businesses time to compile their returns and arrange payment. Timely submission of returns and payment of any VAT owed are important to avoid penalties and interest charges. These deadlines apply even if no VAT is due, requiring a “nil” return submission.