Payments in advance and deposits

When do you charge VAT on deposits and pre-payments?

You may receive a deposit or pre-payment before you have completed supplying your goods or services. In such cases, a supply is deemed to have taken place at the time of receiving the payment. Value-Added Tax (VAT) is chargeable on the pre-payment and you must pay the VAT to Revenue in your VAT return.

See Invoice requirements of payments received in advance for details on the issue of invoices and credit notes in respect of these deposits.

VAT treatment when a transaction is cancelled prior to 1 January 2022

If you retain a deposit, following cancellation of the whole transaction by the customer before 1 January 2022, you may reduce your VAT liability for the period in which the deposit is forfeited. The allowable reduction is an amount equal to the amount accounted for on the deposit. It must only be available for deposits received and cancelled before 1 January 2022.

There are a number of conditions for this to apply:

  • the supply does not take place because the customer has cancelled it
  • the cancellation is noted as such in the books and records of the supplier
  • the deposit is not refunded to the customer
  • no other consideration, benefit or supply, is provided to the customer by any person in lieu of that amount.