VQOTW: Deposits/Part Payments when Exporting Goods

My client is a sole proprietor who hand makes bespoke furniture and has taken a large order from a Norwegian individual for some solid oak furniture. He has taken a £5000 deposit in order to start buying the raw materials. There will be a further part payment of £5000 required part way through the job and the balance to be paid prior to shipping.  The work will take several weeks to complete and with the client being extremely busy with other orders, it is likely he will not be able to complete the order and ship the goods to Norway until November 2019. My client has been charging VAT at the standard rate for deposits and part payments; is this the correct treatment?

Norway is not within the European Community (EC); therefore, we treat the supply of goods delivered into Norway as a direct export in this scenario.

All of the following conditions have to be met in order to zero-rate an export:

  • You must hold proof that the goods have been shipped from the UK to a destination outside the EC. For example, sea/air waybills or bills of lading, alongside commercial evidence such as sales invoices and contracts.
  • Ensure goods are exported from the EC within three months of the tax point.
  • Obtain official or commercial evidence of export within three months of the tax point.

The tax point will be the earlier of, either the date you send the goods or the customer takes them away, or when full payment is received for the supply. In your client’s case, assuming that full payment will not be made until late 2019, a tax point has not been created.

VAT notice 703 section 11.5 states ‘deposits and progress payments are part payments towards the total cost of a supply received in advance of its completion and have the same VAT liability as the final supply. If the final supply is to be zero-rated as an export, these payments may also be zero-rated.’ Your client should have treated these payments as zero-rated.

Once the invoice has been paid in full, the export conditions above need to be met in order to support zero-rating the supply. If those conditions cannot be met then the whole supply must be standard rated and an adjustment is required on the VAT return following the expiry of the three-month time limit.


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Priyesh has worked as a VAT Compliance Officer for HMRC since 2013 prior to joining Croner Taxwise. He initially worked in Small and Medium Enterprises before moving on to Wealthy & Midsize Businesses in 2014 where he gained a broad understanding of VAT and trained new VAT entrants.

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