VAT changes to retained deposits imminent
Businesses whose services generate retained deposits will no longer be exempt from VAT on these payments as of 1st March 2019, warns our VAT Manager Brent Goodwin.
Brent Goodwin, VAT Manager
Deposits are retained when a payment is made to secure bookings for goods or services which are subsequently not taken up. Hotels, restaurants and other such businesses are currently exempt from VAT charges on retained deposits, and have previously kept these payments as compensation for having held a table or room.
Following two recent European Court rulings, companies whose services require customers to make a deposit or down-payment will be responsible for paying VAT to HMRC on deposits where the service or goods are not used or collected. This change will take effect from Friday 1st March 2019.
Bookings that are cancelled or fail to be honoured before 1st March will be subject to HMRC's current policy, meaning VAT will not be chargeable on the deposit.
VAT Manager Brent Goodwin ACA says: “It's important that businesses are aware of this upcoming policy change. Until now, they have had the right to retain deposits on the unfulfilled supply of goods or services without any VAT implications; however, this is now changing. Any business which has previously kept deposits under these circumstances should prepare to pay VAT on those sums retained in relation to bookings, goods or services that are cancelled or not honoured from 1st March 2019.”
For further information about our services, please call our Leicester branch on 0116 254 9262, our Loughborough branch on 01509 263500 .