ATXP6 UK
Syllabus A6. Value Added Tax A6a. Computation of VAT liabilities

A6a. Recognise the tax point when goods or services are supplied

Syllabus A6a)

The computation of VAT liabilities

What is the tax point?

The tax point is the date used to identify the VAT period which should be used to include the output or input VAT.

Basic tax point

This is:

  1. The date the goods are delivered

    or

  2. The date the services are performed

Actual tax point:

The actual tax point is used more frequently than the basic tax point.

The actual tax point is the earlier of:

  1. The date the cash is received or paid before the goods

    and

  2. The basic tax point

    The basic tax point date is replaced by the invoice date if an invoice is issued within 14 days of the basic tax point.

Here is a simple way to work your tax point out:

  1. Step 1:
    The basic tax point is the date that the goods are delivered or services are performed. 

    Use the basic tax point if the answers to the below two steps are NO.

  2. Step 2:
    Is cash paid or received before the basic tax point date? (Actual tax point)

    Yes – Use this date.
    No – Go to step 3

  3. Step 3:
    Is an invoice issued within 14 days after the goods are delivered or services are performed (basic tax point date)? (Actual tax point)

    Yes – Use this date.
    No – Use the basic tax point date from step 1. 

    You will find this easier to understand with an illustration!

Illustration:

Joe is a sole trader in business selling furniture (a standard rated supply). 

He sells furniture to Ikea on 31/05/2018 for £50,000 (Vat inclusive).

31/05/2018 Deposit of £2,000 received
30/09/2018 Goods delivered
12/10/2018 Invoice issued for goods
02/01/2019 Balance of £48,000 paid for goods. 

Joe files his VAT returns quarterly. 

On which VAT return will this output VAT be included?

  • Here is how the transaction went:

Solution:

  1. Step 1:
    The basic tax point is 30/09/2018. Let us move on to the other 2 steps.

  2. Step 2:
    Is cash paid or received before the basic tax point date? (Actual tax point)

    Yes – £2,000 deposit but the remaining has not been paid. 

    Therefore, for this £2,000 sale the output VAT related to it of:

    £2,000 * 1/6 = £333 must be included in the VAT return filed on 30/06/2018.

Now, for the remaining £48,000 – we must go through the steps again.

  1. Step 1:
    The basic tax point is 30/09/2018. Let us move on to the other 2 steps.

  2. Step 2:
    Is cash paid or received before the basic tax point date? (Actual tax point)

    No – Go to step 3

  3. Step 3:
    Is an invoice issued within 14 days after the goods are delivered or services are performed (basic tax point date)? (Actual tax point)

    Yes – Invoice was issued on 12/10/2018 and the goods were delivered on 30/09/2017.

    Therefore, for this £48,000 sale the output VAT related to it of:

    £48,000 * 1/6 = £8,000 must be included in the VAT return filed on 31/12/2018.