VAT Output tax on customer overpayments

Jun. 12, 2017, 12:00pm

Hands holding coinsHave you ever been paid twice by a customer for the same invoice? OK, so this probably doesn’t happen every day, but when it does, do you know how to deal with the VAT output tax on the customer overpayment?

Clearly, the first action is to try and contact the customer but what if you are unable to contact them? What if the customer appears to have gone out of business? Do you have to declare output tax on the overpayment?-

The answer is ‘No’, where an overpayment is received due to a mistake by a customer it is not consideration for any supply and is therefore outside the scope of VAT (VATSC63600). However, if supplies were going to be made to the customer in future, and the overpayment used as a payment or part payment for those future supplies, then at this point it does become consideration for a supply and liable to VAT.

If you have a VAT query why not contact us to discuss the implications. Our team have a wealth of experience and would love to hear from you.

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