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HMRC internal manual

VAT Time of supply

Actual tax points: payments: refundable deposits

It is sometimes claimed that a refundable deposit or pre-payment cannot create a taxpoint. This is not so. There have been a number of Tribunal decisions in which it has been held that a tax point is created even though the payer has some entitlement to a refund inthe event of the supply not proceeding. This was the position in the Moonraker’s case(see VATTOS5120)where, in the event of the booking being cancelled, customers would receive a refund if the accommodation was re-let.

Another good example is the case of East Kilbride Golf Club (VTD 5503).The Club had an arrangement where by members could partly pre-pay the next years membership subscription by means of 10 monthly standing order payments during the preceding year. Any shortfall in the amounts paid by this means would be made up by the member when the membership fee became due. The arrangement was entirely voluntary and any amounts paidwere wholly refundable if the member resigned. It was held by the Tribunal that receipt of these payments created tax points for the future supply of membership by the club.

A further argument that you might come across is that the payment is made under a contract where performance is conditional on some outside event. It is therefore claimed that no tax point is created as the supply might never take place. This argument has consistently failed to persuade the Tribunal that a tax point has not occurred. An example is the caseof Clowance PLC (VTD 2541). Clowance received deposits for thesale of licences to occupy time-share holiday lodges. Under the contract the lodges were required to be completed by a specified date. If completion was delayed the prospectivepurchaser was entitled to a refund of the deposit. It was held by the Tribunal thatsection 5(1) of the VAT Act 1983 (now section 6(4) of the 1994 VAT Act – see VATTOS2225) applied equally to conditional and unconditional contracts.