Value-added tax
627. VAT on deposits received
October 1998

 

 

In terms of the definition of "consideration" in the VAT Act, it is stated that a deposit (other than a deposit on a returnable container), whether refundable or not, given in respect of a supply of goods or services shall not be considered as payment made for the supply unless and until -

 

This definition has a number of implications:

 

This is extremely important.

 

If the payment received is simply a payment on account, as opposed to a deposit, then VAT is immediately payable on the full purchase price of goods sold and not only on the amount of the payment received. This is because a payment on account of a purchase price immediately triggers the time of supply rule and VAT is payable whether an invoice has been issued or not. If an invoice has been issued, the VAT is in any event payable. Payments not actually received by the vendor (e.g. held in an attorney’s trust account) would not be considered as payment received on account of the purchase price. The same would apply to retention amounts held back.

 

In regard to the supply of services on a progressive basis, e.g. a builder, the time of each supply is deemed to be the earliest of the following:

 

It is important to ensure in the case of progressive supplies that an invoice for the full contract price is not immediately issued, as VAT will then be payable immediately on the full contract price.

 

Horwath Zeller Karro

Definition "consideration" S1 VAT Act