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Previous rules (before 28 February 2019)

A business would recognise VAT as due upon receipt of cash/payment received for a future taxable supply. If the supply is later unfulfilled and it is agreed by both parties that no refund is due, then this payment originally made will be treated as compensation. The impact being that the business could adjust their VAT return in the next quarter and reclaim VAT previously paid in respect of this unfulfilled supply.

New rules (post 1 March 2019)

VAT will still be payable on receipt of cash/payment received for a future supply, however where it remains unfulfilled as above, and no refund provided to the customer, no VAT adjustment will be able to be made. Any VAT paid previously over to HMRC in relation to this unfulfilled supply will not be able to be reclaimed.

HMRC have confirmed that any businesses prior to 1 March who have not adjusted their VAT returns for unfulfilled supplies will not now be able to go and make such adjustments retrospectively.

This change will impact many sectors, however it will be extremely prevalent locally in the leisure and tourism industry, where deposits are often paid for accommodation or booking of events.