What is the time of supply rule for VAT?

Here is a comprehensive answer on the VAT time of supply rules.

VAT Time of Supply

What the law says

The time of supply rules are set out in section 6 of the Value Added Tax Act 1994 (VATA 1994). They determine when a supply is treated as taking place for the purposes of the charge to VAT.

Basic Tax Points

Goods: A supply of goods is treated as taking place:

• If the goods are to be removed — at the time of removal;
• If the goods are not to be removed — at the time they are made available to the recipient;
• If goods are sent on approval, sale or return or similar terms before it is known whether a supply will take place — at the time it becomes certain the supply has taken place, or 12 months after removal, whichever is sooner.

Services: A supply of services is treated as taking place at the time when the services are performed.

Actual Tax Points — Overriding the Basic Tax Point

The basic tax point is overridden in the following circumstances:

1. Early invoice or payment (s.6(4)): If, before the basic tax point, the supplier issues a VAT invoice or receives a payment, the supply is treated as taking place at the time the invoice is issued or the payment is received (to the extent covered by the invoice or payment).

2. 14-day rule (s.6(5)): If, within 14 days after the basic tax point, the supplier issues a VAT invoice, the supply is treated as taking place at the time the invoice is issued (unless the supplier has notified HMRC in writing that they elect not to use this rule).

3. Extended 14-day rule (s.6(6)): HMRC may, at a taxable person's request, direct that a period longer than 14 days applies for the purposes of s.6(5).

4. Periodic/instalment supplies (s.6(14)): HMRC may make regulations for supplies where consideration is determined or payable periodically, or at the end of a period, providing for goods or services to be treated as separately and successively supplied at prescribed times.

HMRC guidance / practice

Basic tax point for goods: The basic tax point for goods is the date of removal or the date goods are made available.

Basic tax point for services: HMRC interprets the basic tax point for services (when services are "performed") as the point in time at which the services have been completed — traditionally defined as the date when all the work, except the invoicing, is completed.

Actual tax points in practice: In practice, most supplies are subject to an actual tax point created by the issue of a VAT invoice or receipt of a payment. The basic tax point remains important as it determines the legal basis for the actual tax point — for example, payments and invoices before the basic tax point are covered by s.6(4), while invoices after the basic tax point fall within s.6(5).

If no invoice is issued and no payment received: If an invoice is not issued or payment is not received (or they are delayed), the time of supply will in many cases revert to the basic tax point.

VAT invoice as a tax point trigger: A VAT invoice is the most common tax point trigger. It can create an actual tax point under s.6(4) before the basic tax point, or under s.6(5) and (6) after it. Regulations 85, 86 and 90 of the VAT Regulations 1995 also allow periodic VAT invoices for suppliers wishing to issue a single document covering payments due over a period of up to one year.

Special regulations: The time of supply regulations in Part XI of the VAT Regulations 1995 provide special rules for particular categories of supply (made under the powers of s.6(14) VATA 1994). In many cases under these regulations, the tax point is the earlier of receipt of payment or the issue of a VAT invoice. Importantly, for supplies covered by these regulations, there is generally no basic tax point — for example, the tax point for telephone services under regulation 90 can only ever be the earlier of invoice or payment.

Self-billing: As a general principle, a self-billed invoice (issued by the customer rather than the supplier) does not create a tax point — except where it falls within the 14-day rule under s.6(5), as specifically provided for in paragraph 2B(4) of Schedule 11 VATA 1994.

Summary Table