infosheet The difference between
Invoice Date and Tax Point Date		      Return to menu
     
   Definitions    The tax point date and the invoice date


The tax point date is defined as the earlier of:
  • the date the goods were delivered, or the service completed;
  • the date the agreed payment would ordinarily fall due for settlement; or
  • the date payment was actually received.

    • The importance of accurately identifying this date is vital to every business, large or small, because it defines the point in time when the transaction is recognised for tax purposes.

    The invoice date is the date the invoice was physically produced and forwarded to the customer. It is significant because this is often the date from which the period of credit commences under the normal trading terms.

    Most of the time the two dates are one and the same. It only matters when they are not.
       Why it is so important    Around the accounting year-end, a dishonest trader can create a significant tax advantage by artificially delaying the recognition of sales. This serves to reduce the reported taxable income recognised in the period.

    Conscious of this possibility, a visiting tax inspector will always look through the books, to confirm that a trader is recognising sales and expenditure when they should.

    Many honest traders have also found out the hard way, that getting it wrong can be very expensive.

    Take the threshold for compulsory VAT registration, which currently stands at £54,000. Any business with an annual turnover just below the threshold, and who also trades mainly with the public, will understandably wish to avoid compulsory VAT registration. This is because the day after VAT registration, the business will need to charge 17.5% more on each sale, just to stay as profitable as they had been in the past.

    Now let us assume our hypothetical, and very honest, trader has a VAT compliance visit. The inspector is happy with everything accept the treatment of one sales invoice three years ago. The invoice date was used in the accounts, but the inspector insists that because the payment had in fact been received earlier, the real tax point date is some 20 days earlier.

    In isolation the invoice is not material, and only amounts to a few hundred pounds. Unfortunately for the trader, the revised figure means that he exceeded the annual compulsory registration limit three years ago. The inspector may well accept that the error was made without any intention to avoid registration, and is prepared to waive the penalty. The inspector is obliged, however, to raise a back duty VAT assessment on all the sales since that date. Three years sales at 17.5% is a bitter pill to swallow.

    Of course you say, this is the worst case scenario to illustrate a point. It doesn't happen in reality. You would be wrong. More than a few traders have been forced into bankruptcy through a lack of understanding of the difference between the tax point date and the invoice date. Don't let it happen to you.
       The golden rule for taxpayers    It may sound flippant, but if you are in any doubt about the right way to treat a specific transaction for tax purposes, always take the position that is least advantageous to you. It will probably be the correct treatment anyway, but even if it transpires to be wrong, the required correction will at least be acting in your favour.

       Better still, don't guess ... ask!   

    The Inland Revenue and HM Customs and Excise operate special telephone help lines that are there to advise taxpayers on exactly these kinds of issues. Do not hesitate to use them.

    You should also remember that you can also e-mail us with technical questions, using the Contact Page on this website.




       A word of caution for users of Sage and similar software    At the time of writing none of the leading UK entry-level accounting software packages provide the user with the facility to distinguish between tax point and invoice date. They assume that users will always enter the tax point date, and consequently only provide for one 'invoice date'.

    Providing users do enter the tax point date, and not the invoice date (note - as they are invited to do), then the only problem that may arise is that credit control on the odd invoice may go to pot. The software is of course restricted to calculating aged debtors based on the one date field. The invoice date is often used to determine the credit terms, and when this is materially different to the tax point date, the software with only one field will be unable to cope.

    The credit control problem is hardly significant, and can easily be worked around. This may not be the case if invoice dates are used instead of tax point dates.