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HMRC internal manual

VAT Bad Debt Relief

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HM Revenue & Customs
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Payments: How are payments attributed?

Regulation 170 sets out the basis for attributing payments received when calculating the amount that remains ‘outstanding’. Where more than one supply has been made and a payment is received in relation to those supplies the payments should be allocated to the earliest supply first. (VAT Act 1994, section 6 sets out the time of supply rules - there are significant differences in the time of supply for goods and services, seeVATTOS4000)

The exception to this is when a payment is specifically allocated by the customer to a particular supply and the supply is paid for in full. In such cases, the payment is attributed in accordance with the customer’s instructions.

Where more than one supply is made on the same day, payments are attributed equally across all the supplies. See VBDR2400for special rules for supplies of goods under hire purchase, conditional sale and credit sale agreements.

Example showing the attribution of payments under Regulation 170(2)

Supplies all made to the same customer

Ref Number Date of Supply Net VAT Gross
         
1 01.01.2003 500 87.5 587.5
2 01.02.2003 1000 175 1175
03 (zero-rated supply) 01.02.2003 500   500
4 01.03.2003 300 52.5 352.5
5 01.04.2003 500 87.5 587.5

Payments received

Date Amount Allocated
     
01.04.2003 500 All allocated to Supply 01.
01.06.2003 352.5 Customer specifies that the payment is for Supply 04 and so it is allocated in full to 04.
01.10.2003 1500 First 87.50 allocated to Supply 01. Remaining 1,412.50 attributed equally to Supplies 02 and 03.

Attribution to Supply 02 =

1,412.50 x 1,175.00 1,675.00 = 990.86.

Attribution to Supply 03 =

1,412.50 x 500.00 1,675.00 = 421.64.

Amounts ‘outstanding’ for each supply

Reference Number Amount Paid Amount Outstanding
     
1 587.5 Nil
2 990.86 184.14
3 421.64 78.36
4 352.5 Nil
5 Nil 587.5