VBDR2200 | Payments: How are payments attributed?

From HM Revenue & Customs · VAT Bad Debt Relief

Regulation 170 sets out the basis for attributing payments received when calculating the amount that remains ‘outstanding’. Where more than one supply has been made and a payment is received in relation to those supplies the payments should be allocated to the earliest supply first. (VAT Act 1994, section 6 sets out the time of supply rules - there are significant differences in the time of supply for goods and services, seeVATTOS4000)

The exception to this is when a payment is specifically allocated by the customer to a particular supply and the supply is paid for in full. In such cases, the payment is attributed in accordance with the customer’s instructions.

Where more than one supply is made on the same day, payments are attributed equally across all the supplies. See VBDR2400for special rules for supplies of goods under hire purchase, conditional sale and credit sale agreements.

Example showing the attribution of payments under Regulation 170(2)

Supplies all made to the same customer

Ref Number	Date of Supply	Net	VAT	Gross
1	01.01.2003	500	87.5	587.5
2	01.02.2003	1000	175	1175
03 (zero-rated supply)	01.02.2003	500	0	500
4	01.03.2003	300	52.5	352.5
5	01.04.2003	500	87.5	587.5

Payments received

Date	Amount	Allocated
01.04.2003	500	All allocated to Supply 01.
01.06.2003	352.5	Customer specifies that the payment is for Supply 04 and so it is allocated in full to 04.
01.10.2003	1500	First 87.50 allocated to Supply 1. Remaining 1,412.50 attributed equally to Supplies 02 and 03. Attribution to Supply 02 = 1,412.50 x 1,175.00 1,675.00 =990.86. Attribuition to Supply 03 = 1,412.50 x 500.00 1,675.00 = 421.64

Amounts ‘outstanding’ for each supply

Reference Number	Amount Paid	Amount Outstanding
1	587.5	Nil
2	990.86	184.14
3	421.64	78.36
4	352.5	Nil
5	Nil	587.5