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 to the value of the payment. Value-Added Tax (VAT) is chargeable on the pre-payment and you must pay the VAT to Revenue in your VAT return.

What is the VAT treatment of non-refundable deposits when a transaction is cancelled?

Where a deposit is retained by you following cancellation of the whole transaction by the customer, 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.

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 recorded 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.

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