HMRC has recently issued Revenue & Customs Brief 13 (2018), explaining their new policy on VAT treatment of retained payments and deposits. This may be relevant to companies and businesses charging for services in advance of their supply, which are not refundable on cancellation. This is of course commonplace in the travel and hospitality industries.
Currently, HMRC policy is to allow advance payments for services and goods as outside the scope of VAT where the customer does not use the service or collect the goods on the basis that no supply has been made. This policy has been in place for a number of years but needs to be changed following judgements delivered in the Court of Justice of the European Union (CJEU) in order to bring it into line with these decisions.
HMRC have stated that from 1 March 2019 all advance payments for goods and services where the supplier becomes aware that a customer has decided not to take up the goods or services will remain subject to VAT with no adjustments allowed for the retained payments.
If you would like to discuss, or need assistance with VAT please call Colin Hall, VAT Manager on Rugby 01788 539000.