The VAT treatment of payments retained by businesses for supplies of goods and services that are not actually made to the customer is changing with effect from 1 March 2019. This will impact, amongst other areas, on sectors such as hotels where 'no shows' are common and also on inter group supplies of services such as management charges.

The rule change impacts on businesses where they either make a supply of services that are not actually used by the customer, or if they supply goods, and the customer fails to collect the goods in question. Under current VAT rules no VAT is due on the payment of a deposit or on full payment in such a scenario as no supply has occurred.Following a number of European Court of Justice decisions it has been determined that where a part or full payment for a supply is made, a VATable event takes place and VAT is due on the amount paid unless it is refunded to the customer.  This can be compared to the current UK stance for example for hotels where no show fees retained in certain circumstances are treated as VAT free.

From 1 March 2019 onwards VAT will be due on all retained payments for unused services and uncollected goods. This will apply where the supplier is aware that the customer has decided not to take up the offer of goods or services after making payment. VAT will also be due where a credit card details are taken but payment is not collected until the goods are used or collected. No refunds or adjustments of VAT will be allowed unless the payment is returned to the customer. 

The change does not (so far) affect businesses that collect a payment for goods, dispatch them and the goods are then returned. If the customer fails to request a refund this appears to fall outside of the rule change.  This will also not affect supplies of goods or services where the payment is collected in advance of the agreed date for delivery of the service as the tax point for such payments has always been the date of the earlier of a VAT invoice being issued or receipt of a payment. If your business is likely to be affected by this change please contact your usual advisor or call our free VAT helpline.

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