What is a tax point?

Definition of a tax point

A tax point is the date on which VAT becomes due on a particular transaction. The VAT on that transaction must be included on the VAT return in which that date falls.

The tax point depends on several factors, such as:

• Whether the business is invoice accounting or cash accounting for VAT.
• When the goods were supplied or the services carried out.
• When the VAT invoice was issued to the customer.

In most cases, if a business is invoice accounting for VAT, the tax point is the same date as the VAT invoice, and if a business is cash accounting for VAT, the tax point is the date when the money is received.

There are exceptions though, for example if a business supplies goods more than 14 days before it issues a VAT invoice for those goods, the tax point is the day the goods were supplied.

Example of a tax point:

Deborah is a web designer. Her business's VAT quarters end on 31st March, 30th June, 30th September and 31st December each year.

She is invoice accounting for VAT and completes a piece of work on 1st December. The following day she goes away skiing and does not return till 1st January, on which day she issues the invoice to her customer.

Because Deborah completed her work more than 14 days before she issued the VAT invoice, the tax point is the day on which she completed the work - 1st December.

That means she must include this invoice, and the VAT it contains, on her VAT return for the quarter ended 31st December.

Submitting your VAT return online

FreeAgent automatically generates your VAT returns, reminds you when payment is due and then lets you submit them online directly to HMRC.