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How to manage VAT on Customer Deposits in Brightpearl

How to Manage VAT on deposit payments in Brightpearl

If you take deposit payments from customers for goods, then you need to be aware of the VAT implications and how to manage these correctly in your Brightpearl software.

Broadly speaking, if you take a payment in advance of goods being supplied to a customer, then the VAT on that payment becomes due at the earliest of either the invoice being raised or the payment being received.

For example, a customer orders a sofa that costs £1,200 and which will take 6 weeks to deliver.  On 1st October, they pay a deposit of £120.

A normal scenario may look something like this:

1st October: The retailer takes the deposit payment but doesn’t raise an invoice yet.  Effect: VAT on the £120 payment (£20) becomes due as of 1st October and must be included in that quarter’s VAT return.

14th November: The sofa arrives with the retailer, who raises an invoice and requests the remainder of the payment.  Effect: the VAT portion of the remaining £1,080 (£180) must now be included in that quarter’s VAT return, regardless of when the customer actually makes the payment.

In this situation there is two alternative methods of managing your accounts in Brightpearl.

  1. Invoice the entire order as soon as any payment has been received. This will be the simplest option from managing the customer’s account, but it means that the total VAT on the order will become due in that VAT quarter – regardless of when the payment will be received and this may have an impact on your cash flow if the bulk of the payment isn’t made until the following quarter.
  2. Use two separate orders – one which is invoiced when the deposit is paid and the second which is for the balance. This has the advantage of helping with cash flow as the VAT will be potentially split into two different quarters, but it does mean that there will be two separate invoices in the system for the same customer order which you will need to manage.

Got any questions or need help managing your Brightpearl Accounting?  Contact us – we’d love to help! We can help you manage your Bright Pearl accounts and book keeping and can offer 1-2-1 Brightpearl training with our experts.

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