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Accrual-based VAT: the supply, the partial supply and the advance payment decide the period of the tax
The module’s worked examples, then cases to attempt before revealing their solution · 2 sections · 365 words · 3 min
Worked example
One machine, two quarters
A machine builder is taxed on agreed consideration and files quarterly. In January a customer orders a plant for 50,000 euros net, that is 59,500 euros gross, and transfers an advance payment of 11,900 euros on 20 February. It contains 1,900 euros of tax, which arises in the first quarter. The plant is handed over on 15 May. In the second quarter only the tax on the remainder arises: 9,500 minus 1,900, that is 7,600 euros. That the final invoice goes out only in June and the customer pays in July changes nothing.
Practical case
A web project with two milestones and an advance payment
A web agency is taxed on agreed consideration; its tax in the previous year exceeded 9,000 euros, so it files monthly. With a client it agrees two separately priced milestones: concept for 8,000 euros net and programming for 20,000 euros net. The concept is completed on 31 January, the invoice goes out on 5 February and the client pays it on 10 March. On 28 February the client transfers an advance payment of 11,900 euros gross towards the programming, for which an advance invoice exists. The programming is completed on 20 April. How much VAT arises from this job in the pre-return periods January, February, March and April?
Hint: First check whether the milestones are partial supplies. The advance payment forms its own period; the rest of the programming follows the supply. The standard rate is 19 percent.
Show the solution
Both milestones have a separately agreed price and are economically divisible, so they are partial supplies. January: the concept has been carried out, 8,000 euros times 19 percent gives 1,520 euros; invoice date and March payment are irrelevant. February: the advance payment of 11,900 euros gross contains 11,900 times 19/119, that is 1,900 euros of tax, arising at the end of February. March: money is paid but nothing is supplied, so no tax arises. April: the programming costs 20,000 euros net with 3,800 euros of tax; 1,900 euros of it were already taxed in February, so 1,900 euros still arise. Together 5,320 euros, exactly 19 percent of 28,000 euros.
Answer: January 1,520 euros, February 1,900 euros, March 0 euros, April 1,900 euros
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