What is the tax point for a VAT invoice and why does it matter?
The tax point (also called the time of supply) is the date on which a VAT liability arises on a supply of goods or services. The tax point determines which VAT period the supply falls into for VAT return purposes. The basic tax point is the date goods are delivered or services are performed. An actual tax point overrides the basic tax point when an invoice is issued or payment received before or up to 14 days after the basic tax point.
What are the rules for determining the tax point?
Tax point rules (UK example): (1) Basic tax point for goods: date goods are delivered or made available; (2) Basic tax point for services: date the service is completed; (3) Actual tax point: if an invoice is issued or payment received before the basic tax point, the earlier event becomes the tax point; (4) 14-day rule: if an invoice is issued within 14 days after the basic tax point, the invoice date becomes the actual tax point; (5) Continuous supply of services: the tax point may be the end of each billing period or the date of receipt of payment.
Frequently Asked Questions
- Why does the tax point matter for invoice compliance?
- The tax point determines which VAT period a supply falls into. Incorrectly dating a tax point can cause: output VAT to be reported in the wrong period (late VAT declaration, interest charges), input VAT to be claimed before it is deductible (incorrect early recovery), and misalignment between purchase records and supplier returns that triggers audit risk. E-invoicing systems must correctly implement tax point rules for each jurisdiction to ensure accurate VAT period attribution.
- How does the tax point work for prepayments and deposits?
- For goods: a prepayment or deposit received before goods are delivered creates a tax point for the prepaid amount at the date of receipt. A VAT invoice for the deposit must be issued. When the goods are delivered, a further tax point arises for any remaining balance. For services: the same rule applies. Deposits that are refundable and not consideration for a specific supply may not create a tax point; the position depends on the contractual terms and whether the payment is linked to a specific taxable supply.