How you should account for VAT on goods that are lost, stolen, damaged or destroyed.
When you lose goods because of things like losses in the post, theft or damage, you’ll need to make sure you deal with the VAT correctly. In some cases, VAT will still be due on the goods but in other cases it won’t.
The VAT treatment depends on whether or not you’ve actually supplied the goods, what happened to them, who was responsible for them at the time and if you’ve issued a VAT invoice. You also need to take into account any credit you’ve given the customer.
Goods that have been lost
Sometimes you might sell goods to a customer, but they never receive them because they’ve gone astray. This could happen, for example, if goods you send get lost in the post. The way you deal with the VAT on goods that get lost after you make a sale depends on the agreement between you and your customer (your contract). The VAT treatment depends on who’s responsible for losses - you or the customer. You may cover details like this in your standard customer terms and conditions.
Customer is responsible for losses
If your customer is responsible for any losses before the goods are delivered, then VAT is due on the full amount of the sale. You should account for the VAT in the same way as you would for a normal sale.
You are responsible for losses
If you’re responsible for any losses before the goods are delivered, then the way you’ll account for the VAT will depend on whether or not you’ve issued a VAT invoice.
If you’ve issued a VAT invoice to your customer, VAT is due on the amount you invoiced, less the value of any credit you’ve given the customer. So if you give your customer a credit for the full amount they paid there won’t be any VAT due. Even if there’s no VAT due because you’ve given your customer a full refund, you should still show details of all the transactions in your VAT records.
If you haven’t issued a VAT invoice to your customer then there’s no VAT due. This is because you haven’t supplied anything. You should make a note in your VAT records to explain that the goods were lost and that you haven’t issued a VAT invoice.
Goods that have been stolen
If goods are stolen from your premises there’s no VAT due on them as long as you haven’t already invoiced a customer for them. There’s no VAT due because you haven’t supplied anything.
Goods sold to a customer have been stolen
Sometimes goods might be stolen from your premises after you’ve sold them to a customer. This may happen, for example, if you take delivery of something from a supplier to fulfill a customer order but it gets stolen before it’s collected. If your contract with the customer means that they’re responsible for the goods while they’re on your premises - perhaps because you’ve completed the sale and you’re just storing them for the customer - then you’ve supplied the goods and VAT is due on them.
If the customer isn’t responsible for the goods when they’re stolen, then if you:
- have issued a VAT invoice to your customer VAT is due on the amount you invoiced.
- haven’t issued a VAT invoice there’s no VAT due - this is because you haven’t supplied anything
VAT retail schemes
If you use one of the VAT retail schemes and you’ve had goods stolen this might involve making adjustments to your scheme calculations for VAT purposes. You’ll need to check the information for either a direct calculation retail scheme or a point of sale retail scheme.
Goods lost because of fraud
To avoid paying VAT unnecessarily on goods that you lose because of fraud, you’ll need to:
- report the incident to the police
- contact HM Revenue & Customs (HMRC) and give them details of the case
When you contact HMRC you may need to give full details of the fraud, including a crime or case reference number you’ve been given by the police. So have as much information as possible to hand. HMRC will look at the case and advise you of what to do.
Goods that have been damaged or destroyed
Damaged goods that you sell on
From time to time something that you normally sell might get damaged. For example, a member of staff might drop something and scratch it.
You might decide to sell the damaged item at a discounted price as damaged goods or it might have some scrap value. If you do sell the damaged goods, VAT is due in the normal way on whatever you sell them for. They’re not second-hand goods, so you can’t include them in any second-hand margin scheme that you operate for VAT. If you get some money from your insurer to cover the damage, there’s no VAT due on the payment from them.
Goods destroyed so that they’re not saleable
Goods might be destroyed meaning that you can’t sell them at all. If this happens and you hand over the goods - or what’s left of them - to your insurer, there’s no VAT due. And there’s no VAT due on any money you receive from your insurer. HMRC will need to see evidence of your insurance claim, and details of any insurance payment, on their next inspection visit to your business.